Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long Term Care Hospital Prospective Payment System and FiscalYear 2012 Rates, etc.

This Rule document was issued by the Centers for Medicare Medicaid Services (CMS)

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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412, 413, and 476
[CMS-1518-F; CMS-1430-F]
RIN 0938-AQ24; RIN 0938-AQ92

Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and FY 2012 Rates; Hospitals' FTE Resident Caps for Graduate Medical Education Payment

Agency

Centers for Medicare and Medicaid Services (CMS), HHS.

Action

Final rules.

Summary

We are revising the Medicare hospital inpatient prospective payment systems (IPPS) for operating and capital-related costs of acute care hospitals to implement changes arising from our continuing experience with these systems and to implement certain statutory provisions contained in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act) and other legislation. We also are setting forth the update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits.

We are updating the payment policy and the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs) and implementing certain statutory changes made by the Affordable Care Act. In addition, we are finalizing an interim final rule with comment period that implements section 203 of the Medicare and Medicaid Extenders Act of 2010 relating to the treatment of teaching hospitals that are members of the same Medicare graduate medical education affiliated groups for the purpose of determining possible full-time equivalent (FTE) resident cap reductions.

Dates

Effective dates: These final rules are effective on October 1, 2011, except for the provisions of § 412.230(d)(5), which are effective September 1, 2011. Effective July 29, 2011, the interim rule published March 14, 2011, at 76 FR 13515, is confirmed as final without change.

Applicability dates: The update to the rate-of-increase limits for certain hospitals excluded from the IPPS that are paid on a reasonable cost basis subject to these limits is applicable beginning on or after October 1, 2011. The payment policy and the annual payment rates for inpatient hospital services provided by IPPS hospitals and by long-term care hospitals (LTCHs) and for implementing certain statutory changes made by the Affordable Care Act and other legislation are applicable to discharges occurring on or after October 1, 2011 unless otherwise specified in this final rule.

For Further Information Contact

Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and Technology Add-On Payments, Hospital Geographic Reclassifications, Graduate Medical Education, Capital Prospective Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH), and Postacute Care Transfer Issues.

Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG Relative Weights Issues.

Bridget Dickensheets, (410) 786-8670, Rebasing and Revising of the Market Basket for LTCHs Issues.

Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital Demonstration Program Issues.

James Poyer, (410) 786-2261, Inpatient Quality Reporting—Program Administration, Validation, and Reconsideration Issues.

Shaheen Halim, (410) 786-0641, Inpatient Quality Reporting—Measures Issues Except Hospital Consumer Assessment of Healthcare Providers and Systems Issues; and Readmission Measures for Hospitals Issues.

Elizabeth Goldstein, (410) 786-6665, Inpatient Quality Reporting—Hospital Consumer Assessment of Healthcare Providers and Systems Measures Issues.

Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.

Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing Efficiency Measures Issues.

Supplementary Information

Electronic Access

ThisFederal Registerdocument is also available from theFederal Registeronline database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web, (the Superintendent of Documents' home Web page address is http://www.gpoaccess.gov/), by using local WAIS client software, or by telnet to swais.access.gpo.gov, then log in as guest (no password required). Dial-in users should use communications software and modem to call (202) 512-1661; type swais, then log in as guest (no password required).

Tables Available Only Through the Internet on the CMS Web Site

In the past, a majority of the tables referred to throughout this preamble and in the Addendum to this final rule were published in theFederal Registeras part of the annual proposed and final rules. However, beginning in FY 2012, some of the IPPS tables and LTCH PPS tables will no longer be published as part of the annual IPPS and LTCH PPS proposed and final rules. Instead, these tables will be available only through the Internet. The IPPS tables for this final rule are available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. Click on the link on the left side of the screen titled, “FY 2012 IPPS Final Rule Home Page” or “Acute Inpatient—Files for Download.” The LTCH PPS tables for this FY 2012 final rule are available only through the Internet on the CMS Web site at: http://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp under the list item for Regulation Number CMS-1518-F. For complete details on the availability of the tables referenced in this final rule, we refer readers to section VI. of the Addendum to this final rule.

Readers who experience any problems accessing any of the tables that are posted on the CMS Web sites identified above should contact Nisha Bhat at (410) 786-4487.

Acronyms

3M3M Health Information System

AAMCAssociation of American Medical Colleges

ACGMEAccreditation Council for Graduate Medical Education

AHAAmerican Hospital Association

AHICAmerican Health Information Community

AHIMAAmerican Health Information Management Association

AHRQAgency for Healthcare Research and Quality

ALOSAverage length of stay

ALTHAAcute Long Term Hospital Association

AMAAmerican Medical Association

AMGAAmerican Medical Group Association

AOAAmerican Osteopathic Association

APR DRGAll Patient Refined Diagnosis Related Group System

ARRAAmerican Recovery and Reinvestment Act of 2009, Public Law 111-5

ASCAmbulatory surgical center

ASCAAdministrative Simplification Compliance Act of 2002, Public Law 107-105

ASITNAmerican Society of Interventional and Therapeutic Neuroradiology

BBABalanced Budget Act of 1997, Public Law 105-33

BBRAMedicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999, Public Law 106-113

BIPAMedicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000, Public Law 106-554

BLSBureau of Labor Statistics

CAHCritical access hospital

CARE[Medicare] Continuity Assessment Record & Evaluation [Instrument]

CART CMSAbstraction & Reporting Tool

CBSAsCore-based statistical areas

CCComplication or comorbidity

CCRCost-to-charge ratio

CDAC[Medicare] Clinical Data Abstraction Center

CDAD Clostridium difficile-associated disease

CIPICapital input price index

CMICase-mix index

CMSCenters for Medicare & Medicaid Services

CMSAConsolidated Metropolitan Statistical Area

COBRAConsolidated Omnibus Reconciliation Act of 1985, Public Law 99-272

COLACost-of-living adjustment

CoP[Hospital] condition of participation

CPIConsumer price index

CRNACertified Registered Nurse Anesthetist

CYCalendar year

DPPDisproportionate patient percentage

DRADeficit Reduction Act of 2005, Public Law 109-171

DRGDiagnosis-related group

DSHDisproportionate share hospital

ECIEmployment cost index

EDB[Medicare] Enrollment Database

EHRElectronic health record

EMRElectronic medical record

FAHFederation of Hospitals

FDAFood and Drug Administration

FFYFederal fiscal year

FQHCFederally qualified health center

FTEFull-time equivalent

FYFiscal year

GAAPGenerally Accepted Accounting Principles

GAFGeographic Adjustment Factor

GMEGraduate medical education

HACsHospital-acquired conditions

HCAHPSHospital Consumer Assessment of Healthcare Providers and Systems

HCFAHealth Care Financing Administration

HCOHigh-cost outlier

HCRISHospital Cost Report Information System

HHAHome health agency

HHSDepartment of Health and Human Services

HICANHealth Insurance Claims Account Number

HIPAAHealth Insurance Portability and Accountability Act of 1996, Public Law 104-191

HIPCHealth Information Policy Council

HISHealth information system

HITHealth information technology

HMOHealth maintenance organization

HPMPHospital Payment Monitoring Program

HSAHealth savings account

HSCRC[Maryland] Health Services Cost Review Commission

HSRVHospital-specific relative value

HSRVccHospital-specific relative value cost center

HQAHospital Quality Alliance

HQIHospital Quality Initiative

ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification

ICD-10-CMInternational Classification of Diseases, Tenth Revision, Clinical Modification

ICD-10-PCSInternational Classification of Diseases, Tenth Revision, Procedure Coding System

ICRInformation collection requirement

IGIIHS Global Insight, Inc.

IHSIndian Health Service

IMEIndirect medical education

I-OInput-Output

IOMInstitute of Medicine

IPFInpatient psychiatric facility

IPPS[Acute care hospital] inpatient prospective payment system

IRFInpatient rehabilitation facility

IQRInpatient Quality Reporting

LAMCsLarge area metropolitan counties

LOSLength of stay

LTC-DRGLong-term care diagnosis-related group

LTCHLong-term care hospital

MAMedicare Advantage

MACMedicare Administrative Contractor

MCCMajor complication or comorbidity

MCEMedicare Code Editor

MCOManaged care organization

MCVMajor cardiovascular condition

MDCMajor diagnostic category

MDHMedicare-dependent, small rural hospital

MedPACMedicare Payment Advisory Commission

MedPARMedicare Provider Analysis and Review File

MEIMedicare Economic Index

MGCRBMedicare Geographic Classification Review Board

MIEA-TRHCAMedicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006, Public Law 109-432

MIPPAMedicare Improvements for Patients and Providers Act of 2008, Public Law 110-275

MMAMedicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173

MMEAMedicare and Medicaid Extenders Act of 2010, Public Law 111-309

MMSEAMedicare, Medicaid, and SCHIP Extension Act of 2007, Public Law 110-173

MRHFPMedicare Rural Hospital Flexibility Program

MRSAMethicillin-resistant Staphylococcus aureus

MSAMetropolitan Statistical Area

MS-DRGMedicare severity diagnosis-related group

MS-LTC-DRGMedicare severity long-term care diagnosis-related group

NAICSNorth American Industrial Classification System

NALTHNational Association of Long Term Hospitals

NCDNational coverage determination

NCHSNational Center for Health Statistics

NCQANational Committee for Quality Assurance

NCVHSNational Committee on Vital and Health Statistics

NECMANew England County Metropolitan Areas

NQFNational Quality Forum

NTISNational Technical Information Service

NTTAANational Technology Transfer and Advancement Act of 1991 (Pub. L. 104-113)

NVHRINational Voluntary Hospital Reporting Initiative

OACT [CMS']Office of the Actuary

OBRA 86Omnibus Budget Reconciliation Act of 1996, Public Law 99-509

OESOccupational employment statistics

OIGOffice of the Inspector General

OMBExecutive Office of Management and Budget

OPMU.S. Office of Personnel Management

O.R.Operating room

OSCAROnline Survey Certification and Reporting [System]

PMSAsPrimary metropolitan statistical areas

POAPresent on admission

PPACAPatient Protection and Affordable Care Act, Public Law 111-148

PPIProducer price index

PPSProspective payment system

PRMProvider Reimbursement Manual

ProPACProspective Payment Assessment Commission

PRRBProvider Reimbursement Review Board

PRTFsPsychiatric residential treatment facilities

PSFProvider-Specific File

PS&RProvider Statistical and Reimbursement (System)

QIGQuality Improvement Group, CMS

QIOQuality Improvement Organization

RCEReasonable compensation equivalent

RHCRural health clinic

RHQDAPUReporting hospital quality data for annual payment update

RNHCIReligious nonmedical health care institution

RPLRehabilitation psychiatric long-term care (hospital)

RRCRural referral center

RTIResearch Triangle Institute, International

RUCAsRural-urban commuting area codes

RYRate year

SAFStandard Analytic File

SCHSole community hospital

SFYState fiscal year

SICStandard Industrial Classification

SNFSkilled nursing facility

SOCsStandard occupational classifications

SOMState Operations Manual

SSOShort-stay outlier

TEFRATax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248

TEPTechnical expert panel

TMATMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90

UHDDSUniform hospital discharge data set

Table of Contents

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

2. Hospitals and Hospital Units Excluded From the IPPS

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

4. Critical Access Hospitals (CAHs)

5. Payments for Graduate Medical Education (GME)

B. Provisions of the Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) Applicable to FY 2012

C. Issuance of a Notice of Proposed Rulemaking

1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights

2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals

3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs

4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs

5. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

6. Proposed Changes to the LTCH PPS

7. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

8. Determining Proposed Prospective Payments Rates for LTCHs

9. Impact Analysis

10. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services

11. Discussion of Medicare Payment Advisory Commission Recommendations

D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS Proposed Rule

E. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes

II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights

A. Background

B. MS-DRG Reclassifications

1. General

2. Yearly Review for Making MS-DRG Changes

C. Adoption of the MS-DRGs in FY 2008

D. FY 2012 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90

3. Recoupment or Repayment Adjustments in FYs 2010 through 2012 Required by Public Law 110-90

4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data

5. Prospective Adjustment for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

6. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90

7. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

8. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years

9. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

a. Background

b. Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

2. Summary of the RTI Study of Charge Compression and CCR Refinement

3. Summary of Policy Changes Made in FY 2011

4. Discussion for FY 2012

F. Preventable Hospital-Acquired Conditions (HACs), Including Infections

1. Background

a. Statutory Authority

b. HAC Selection

c. Collaborative Process

d. Application of HAC Payment Policy to MS-DRG Classifications

e. Public Input Regarding Selected and Potential Candidate HACs

f. POA Indicator Reporting

2. Additions and Revisions to the HAC Policy for FY 2012

a. Contrast-Induced Acute Kidney Injury

b. New Diagnosis Codes Added to Existing HACs

c. Revision to HAC Subcategory Title

d. Conclusion

3. RTI Program Evaluation Summary

a. Background

b. FY 2009 Data Analysis

c. FY 2010 Data Analysis

d. FY 2010 RTI Analysis on POA Indicator Reporting of Current HACs.

e. FY 2010 RTI Analysis of Frequency of Discharges and POA Indicator Reporting for Current HACs

f. RTI Analysis of Circumstances When Application of HAC Provisions Would Not Result in MS-DRG Reassignment for Current HACs

g. RTI Analysis of Coding Changes for HAC-Associated Secondary Diagnoses for Current HACs

h. RTI Analysis of Estimated Net Savings for Current HACs

i. Previously Considered Candidate HACs—RTI Analysis of Frequency of Discharges and POA Indicator Reporting

j. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

k. Final Policy Regarding Current HACs and Previously Considered Candidate HACs

G. Changes to Specific MS-DRG Classifications

1. Pre-Major Diagnostic Categories (Pre-MDCs)

a. Noninvasive Mechanical Ventilation

b. Debridement With Mechanical Ventilation Greater Than 96 Hours With Major Operating Room (O.R.) Procedure

c. Autologous Bone Marrow Transplant

2. MDC 1 (Diseases and Disorders of the Nervous System): Rechargeable Dual Array Deep Brain Stimulation System

3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat): Skull Based Surgeries

4. MDC 5 (Diseases and Disorders of the Circulatory System)

a. Percutaneous Mitral Valve Repair With Implant

b. Aneurysm Repair Procedure Codes

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)

a. Artificial Discs

b. Major Joint Replacement or Reattachment of Lower Extremities

c. Combined Anterior/Posterior Spinal Fusion

6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue, and Breast): Excisional Debridement of Wound, Infection, or Burn

7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders)

a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles

b. Sleeve Gastrectomy Procedure for Morbid Obesity

8. MDC 15 (Newborns and Other Neonates with Conditions Originating in the Perinatal Period): Discharge Status Code 66 (Discharged/Transferred to Critical Access Hospital (CAH))

9. Medicare Code Editor (MCE) Changes

10. Surgical Hierarchies

11. Complications or Comorbidity (CC) Exclusions List

a. Background

b. CC Exclusions List for FY 2012

12. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 Into MDCs

b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

c. Adding Diagnosis or Procedure Codes to MDCs

13. Changes to the ICD-9-CM Coding System, Including Discussion of theReplacement of the ICD-9-CM System With the ICD-10-CM and ICD-10-PCS Systems in FY 2014

a. ICD-9-CM Coding System

b. Code Freeze

c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital Inpatient Claims

d. ICD-10 MS-DRGs

14. Other Issues

a. O.R./Non-O.R. Status of Procedures

b. IPPS Recalled Device Policy Clarification

15. Public Comments on Issues Not Addressed in Proposed Rule

H. Recalibration of MS-DRG Weights

I. Add-On Payments for New Services and Technologies

1. Background

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

3. FY 2012 Status of Technologies Approved for FY 2011 Add-On Payments

a. Spiration® IBV Valve System

b. Cardio West TM Temporary Artificial Heart System (Cardio West TM TAH-t)

c. Auto Laser Interstitial Thermal Therapy (AutoLITT TM) System

4. FY 2012 Applications for New Technology Add-On Payments

a. AxiaLIF® 2L+TM System

b. PerfectCLEAN with Micrillon®

III. Changes to the Hospital Wage Index for Acute Care Hospitals

A. Background

B. Core-Based Statistical Areas for the Hospital Wage Index

C. Occupational Mix Adjustment to the FY 2012 Wage Index

1. Development of Data for the FY 2012 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey

2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index

3. Calculation of the Occupational Mix Adjustment for FY 2012

D. Worksheet S-3 Wage Data for the FY 2012 Wage Index

1. Included Categories of Costs

2. Changes to the Reporting Requirements for Pension Costs for the Medicare Wage Index

a. Background

b. Allowable Pension Cost for the Medicare Wage Index

3. Excluded Categories of Costs

4. Use of Wage Index Data by Providers Other Than Acute Care Hospitals under the IPPS

E. Verification of Worksheet S-3 Wage Data

F. Method for Computing the FY 2012 Unadjusted Wage Index

1. Steps for Computation

2. Imputed Floor Policy

3. FY 2012 Puerto Rico Wage Index

G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2012 Occupational Mix Adjusted Wage Index

H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General

2. Effects of Reclassification/Redesignation

3. FY 2012 MGCRB Reclassifications

a. FY 2012 Reclassification Requirements and Approvals

b. Applications for Reclassifications for FY 2013

4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act

5. Reclassifications Under Section 1886(d)(8)(B) of the Act

6. Reclassifications Under Section 508 of Public Law 108-173

7. Waiving Lugar Redesignation for the Out-Migration Adjustment

8. Other Geographic Reclassification Issues

a. Requested Reclassification for Single Hospital MSAs

b. Requests for Exceptions to Geographic Reclassification Rules

I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

J. Process for Requests for Wage Index Data Corrections

K. Labor-Related Share for the FY 2012 Wage Index

IV. Other Decisions and Changes to the IPPS for Operating Costs and GME Costs

A. Hospital Inpatient Quality Reporting Program

1. Background

a. Overview

b. Statutory History and History of Measures Adopted for the Hospital IQR Program

c. Maintenance of Technical Specifications for Quality Measures

d. Public Display of Quality Measures

2. Retirement of Hospital IQR Program Measures

a. Considerations in Retiring Quality Measures from the Hospital IQR Program

b. Retirement of Hospital IQR Program Measures for the FY 2014 Payment Determination and Subsequent Years

3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment Determinations

a. Considerations in Expanding and Updating Quality Measures Under the Hospital IQR Program

b. Hospital IQR Program Measures for the FY 2014 Hospital IQR Payment Determination

c. Hospital IQR Program Quality Measures for the FY 2015 Payment Determination

4. Possible New Quality Measures and Measure Topics for Future Years

5. Form, Manner, and Timing of Quality Data Submission

a. Background

b. Procedural Requirements for the FY 2012 Payment Determinations and Subsequent Years

c. Procedural Requirements for FY 2013 and Subsequent Years

d. Data Submission Requirements for Chart-Abstracted Measures

e. Sampling and Case Thresholds Beginning With the FY 2015 Payment Determination

f. HCAHPS Requirements for the FY 2013, FY 2014, and FY 2015 Payment Determinations

g. Procedures for Claims-Based Measures

h. Data Submission Requirements for Structural Measures

i. Data Submission and Reporting Requirements for Healthcare-Associated Infection (HAI) Measures Reported via NHSN

6. Chart Validation Requirements for Chart-Abstracted Measures

a. Changes to the Chart Validation Requirements and Methods for the FY 2012 Payment Determination and Subsequent Years

b. Supplements to the Chart Validation Process for the FY 2014 Payment Determination and Subsequent Years

7. QIO Regulation Changes for Provider Medical Record Deadlines Possibly Including Serious Reportable Events

8. Data Accuracy and Completeness Acknowledgement Requirements for the FY 2012 Payment Determination and Subsequent Years

9. Public Display Requirements for the FY 2014 Payment Determination and Subsequent Years

10. Reconsideration and Appeal Procedures for the FY 2012 Payment Determination

11. Hospital IQR Program Disaster Waivers

12. Electronic Health Records (EHRs)

a. Background

b. HITECH Act EHR Provisions

B. Hospital Value-Based Purchasing (VBP) Program

1. Background

2. Overview of the Hospital VBP Program Proposed Rule

3. FY 2014 Hospital VBP Program Measures

a. Background

b. Efficiency Measure—Medicare Spending per Beneficiary Measure—for the FY 2014 Hospital VBP Program

4. Efficiency Domain (Medicare Spending per Beneficiary Measure) Performance Period and Baseline Period

5. Simultaneous Specification of Additional Measures for the Hospital VBP Program and the Hospital IQR Program

6. Responses to Additional Hospital VBP Program Comments

C. Hospital Readmissions Reduction Program

1. Background

a. Overview

b. Statutory Basis for the Hospital Readmissions Reduction Program

2. Implementation of the Hospital Readmissions Reduction Program

a. Overview

b. Provisions in the FY 2012 IPPS/LTCH PPS Rulemaking

c. Provisions to be Included in the FY 2013 IPPS/LTCH PPS Proposed Rule

d. Expansion of the Applicable Conditions To Be Included in the Future Rulemaking

3. Provisions of the Hospital Readmissions Reduction Program

a. Applicable Conditions for FY 2013 Hospital Readmissions Reduction Program

b. Definition of “Readmissions”

c. Readmission Measures and Related Methodology

D. Rural Referral Centers (RRCs) (§ 412.96)

1. Case-Mix Index (CMI)

2. Discharges

E. Payment Adjustment for Low-Volume Hospitals (§ 412.101)

1. Background

2. Temporary Changes for FYs 2011 and 2012

3. Discharge Data Source Used to Identify Qualifying Low-Volume Hospitals and Calculate the Payment Adjustment (Percentage Increase) for FY 2012

F. Indirect Medical Education (IME) Adjustment

1. Background

2. IME Adjustment Factor for FY 2012

G. Payment Adjustment for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME) (§§ 412.105 and 412.106)

1. Background

2. Policy Change Relating to the Exclusion of Hospice Beds and Patient Days From the Calculation of the Medicare DSH Payment Adjustment and the IME Payment Adjustment

a. Background

b. Hospice Inpatient Services

H. Medicare-Dependent, Small Rural Hospitals (MDHs) (§ 412.108)

1. Background

2. Extension of the MDH Program

I. Certified Register Nurse Anesthetists (CRNA) Services Furnished in Rural Hospitals and CAHs (§ 412.113)

J. Additional Payments for Qualifying Hospitals With Lowest per Enrollee Medicare Spending

1. Background

2. Method for Identifying Qualifying Hospitals and Eligible Counties

3. Determination of Annual Payment Amounts

4. Eligible Counties and Qualifying Hospitals

5. Payment Determination and Distributions for FY 2011 and FY 2012

K. Changes in the Inpatient Hospital Update

1. FY 2012 Inpatient Hospital Update

2. FY 2012 Puerto Rico Hospital Update

3. Productivity Adjustment

L. Additional Payments to Hospitals With High Percentage of End-Stage Renal Disease (ESRD) Discharges (§ 412.104)

M. Changes to the Reporting Requirements for Pension Costs for Medicare Cost-Finding Purposes

1. Background

2. Allowable Defined Benefit Pension Plan Cost for Medicare Cost-Finding Purposes

N. Rural Community Hospital Demonstration Program

1. Background

2. Changes to the Demonstration Program Made by the Affordable Care Act

3. FY 2012 Budget Neutrality Adjustment

a. Component of the FY 2012 Budget Neutrality Adjustment that Accounts for Estimated Demonstration Program Costs of the “Pre-Expansion” Participating Hospitals

b. Portion of the FY 2012 Budget Neutrality Adjustment That Accounts for Estimated FY 2012 Demonstration Program Costs for Hospitals Newly Selected to Participate in the Demonstration Program

c. Portion of the FY 2012 Budget Neutrality Adjustment to Offset the Amount by Which the Costs of the Demonstration Program in FYs 2007 and 2008 Exceeded the Amount That Was Identified in the FYs 2007 and 2008 IPPS Final Rules as the Budget Neutrality Offset for FYs 2007 and 2008

O. Bundling of Payments for Services Provided to Outpatients Who Later Are Admitted as Inpatients: 3-Day Payment Window

1. Background

2. Establishment of Condition Code 51 (Attestation of Unrelated Outpatient Nondiagnostic Services)

3. Applicability of the Payment Window Policy to Services Furnished at Physicians' Practices

P. Changes to MS-DRGs Subject to the Postacute Care Transfer Policy

1. Background

2. Changes to the Postacute Care Transfer MS-DRGs

Q. Hospital Services Furnished Under Arrangements

R. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Purposes

1. Background and Provisions of the Interim Final Rule With Comment Period

a. Statutory Authority

b. Reductions and Increases to Hospitals' FTE Resident Caps for GME Payment Purposes Under Section 5503 of the Affordable Care Act

c. Treatment of Affiliated Groups Under Section 5503 of the Affordable Care Act

d. Section 203 of the Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309)

2. Summary of the Provisions of the Interim Final Rule With Comment Period

3. Summary of Public Comments, Departmental Responses, and Statements of Final Policies

a. Summary of Public Comments and Departmental Responses

b. Final Policies

4. Collection of Information Requirements

5. Regulatory Impact Statement

a. Statement of Need

b. Overall Impact

c. Anticipated Effects

d. Alternatives Considered

e. Conclusion

6. Comment on Issues Outside of the Scope of the Interim Final Rule With Comment Period

V. Changes to the IPPS for Capital-Related Costs

A. Overview

B. Exception Payments

C. New Hospitals

D. Hospitals Located in Puerto Rico

E. Changes for FY 2012: MS-DRG Documentation and Coding Adjustment

1. Background

2. Prospsective MS-DRG Documentation and Coding Adjustment to the National Capital Federal Rate for FY 2012 and Subsequent Years

3. Documentation and Coding Adjustment to the Puerto Rico-Specific Capital Rate

F. Other Proposed Changes for FY 2012

VI. Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

B. Critical Access Hospital (CAH) Payment for Ambulance Services

1. Background

2. Requirement for CAH Ambulance Within a 35-Mile Location of a CAH or Entity

C. Report of Adjustment (Exceptions) Payments

VII. Changes to the Long-Term Care Hospital Prospective Payment System (LTCH PPS) for FY 2012

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority

2. Criteria for Classification as a LTCH

a. Classification as a LTCH

b. Hospitals Excluded From the LTCH PPS

3. Limitation on Charges to Beneficiaries

4. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance

B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights

1. Background

2. Patient Classifications Into MS-LTC-DRGs

a. Background

b. Changes to the MS-LTC-DRGs for FY 2012

3. Development of the FY 2012 MS-LTC-DRG Relative Weights

a. General Overview of the Development of the MS-LTC-DRG Relative Weights

b. Development of the MS-LTC-DRG Relative Weights for FY 2012

c. Data

d. Hospital-Specific Relative Value (HSRV) Methodology

e. Treatment of Severity Levels in Developing the MS-LTC-DRG Relative Weights

f. Low-Volume MS-LTC-DRGs

g. Steps for Determining the Proposed FY 2012 MS-LTC-DRG Relative Weights

C. Quality Reporting Program for LTCHs

1. Background and Statutory Authority

2. Quality Measures for the LTCH Quality Reporting Program for FY 2014

a. Considerations in the Selection of the Quality Measures

b. LTCH Quality Measures for FY 2014 Payment Determination

3. Possible LTCH Quality Measures Under Consideration for Future Years

4. Data Submission Methods and Timelines

a. Method of Data Submission for HAIs

b. Timeline for Data Reporting Related to HAIs

c. Method of Data Collection and Submission for the Pressure Ulcer Measure Data

d. Timeline for Data Reporting Related to Pressure Ulcers

5. Public Reporting and Availability of Data Submitted

D. Rebasing and Revising of the Market Basket Used Under the LTCH PPS

1. Background

2. Overview of the FY 2008-Based RPL Market Basket

3. Rebasing and Revising of the RPL Market Basket

a. Development of Cost Categories

b. Final Cost Category Computation

c. Selection of Price Proxies

d. Methodology for Capital Portion of the RPL Market Basket

e. FY 2012 Market Basket Update for LTCHs

f. Labor-Related Share

E. Changes to the LTCH Payment Rates and Other Changes to the FY 2012 LTCH PPS

1. Overview of Development of the LTCH Payment Rates

2. FY 2012 LTCH PPS Annual Market Basket Update

a. Overview

b. Revision of Certain Market Basket Updates as Required by the Affordable Care Act

c. Market Basket Under the LTCH PPS for FY 2012

d. Productivity Adjustment

e. Annual Market Basket Update for LTCHs for FY 2012

3. Budget Neutrality Adjustment for the Changes to the Area Wage Level Adjustment

4. Greater Than 25 Day Average Length of Stay Requirement for LTCHs

a. Determining the Average Length of Stay When There is a Change of Ownership

b. Inclusion of Medicare Advantage (MA) Days in the Average Length of Stay Calculation

F. Application of LTCH Moratorium on the Increase in Beds at Section 114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs and LTCH Satellite Facilities Established or Classified as Such Under Section 114(d)(2) of Public Law 110-173

VIII. MedPAC Recommendations

IX. Other Required Information

A. Requests for Data From the Public

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments

2. ICRs for Add-On Payments for New Services and Technologies

3. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program

4. ICRs for the Occupational Mix Adjustment to the FY 2012 Index (Hospital Wage Index Occupational Mix Survey)

5. Hospital Applications for Geographic Reclassifications by the MGCRB

6. ICRs for the Quality Reporting Program for LTCHs

Regulation Text

Addendum—Schedule of Standardized Amounts, Update Factors, and Rate-of-Increase Percentages Effective With Cost Reporting Periods Beginning on or After October 1, 2011

I. Summary and Background

II. Changes to the Prospective Payment Rates for Hospital Inpatient Operating Costs for Acute Care Hospitals for FY 2012

A. Calculation of the Adjusted Standardized Amount

B. Adjustments for Area Wage Levels and Cost-of-Living

C. MS-DRG Relative Weights

D. Calculation of the Prospective Payment Rates

III. Changes to Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs for FY 2012

A. Determination of Federal Hospital Inpatient Capital-Related Prospective Payment Rate Update

B. Calculation of the Inpatient Capital-Related Prospective Payments for FY 2012

C. Capital Input Price Index

IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages for FY 2012

V. Changes to the Payment Rates for the LTCH PPS for FY 2012

A. LTCH PPS Standard Federal Rate for FY 2012

B. Adjustment for Area Wage Levels Under the LTCH PPS for FY 2012

C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

D. Computing the Adjusted LTCH PPS Federal Prospective Payments for FY 2012

VI. Tables Referenced in This Final Rulemaking and Available Through the Internet on the CMS Web Site

Appendix A—Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

B. Need

C. Objectives of the IPPS

D. Limitations of Our Analysis for the IPPS

E. Hospitals Included in and Excluded From the IPPS

F. Effects on Hospitals and Hospital Units Excluded From the IPPS

G. Quantitative Effects of the Policy Changes Under the IPPS for Operating Costs

1. Basis and Methodology of Estimates

2. Analysis of Table I

3. Impact Analysis of Table II

H. Effects of Other Policy Changes

1. Effects of Policy on HACs, Including Infections

2. Effects of Policy Changes Relating to New Medical Service and Technology Add-On Payments

3. Effects of Requirements for Hospital Inpatient Quality Reporting (IQR) Program

4. Effects of Additional Hospital Value-Based Purchasing (VBP) Program Requirements

5. Effects of Requirements for Hospital Readmissions Reduction Program

6. Effects of Policy Changes Relating to Payment Adjustments for Medicare Disproportionate Share Hospitals (DSHs) and Indirect Medical Education (IME)

7. Effects of the FY 2012 Low-Volume Hospital Payment Adjustment

8. Effects of Changes Relating to MDHs

9. Effects of Policy Relating to CRNA Services Furnished in Rural Hospitals and CAHs

10. Effects of Changes Relating to ESRD Add-On Payment

11. Effects of Changes Relating to the Reporting Requirements for Pension Costs for Medicare Cost-Finding and Wage Reporting Purposes

12. Effects of Implementation of Rural Community Hospital Demonstration Program

13. Effects of Changes to List of MS-DRGs Subject to the Postacute Care Transfer and DRG Special Pay Policy

14. Effects of Changes Relating to Hospital Services Furnished Under Arrangements

15. Effects of Change Relating to CAH Payment for Ambulance Services

16. Effects of Finalization of Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes

I. Effects of Changes in the Capital IPPS

1. General Considerations

2. Results

J. Effects of Payment Rate Changes and Policy Changes Under the LTCH PPS

1. Introduction and General Considerations

2. Impact on Rural Hospitals

3. Anticipated Effects of LTCH PPS Payment Rate Change and Policy Changes

4. Effect on the Medicare Program

5. Effect on Medicare Beneficiaries

K. Alternatives Considered

L. Overall Conclusion

1. Acute Care Hospitals

2. LTCHs

M. Accounting Statements and Tables

1. Acute Care Hospitals

2. LTCHs

II. Regulatory Flexibility Act (RFA) Analysis

III. Unfunded Mandate Reform Act (UMRA) Analysis

IV. Executive Order 12866

Appendix B: Recommendation of Update Factors for Operating Cost Rates of Payment for Inpatient Hospital Services

I. Background

II. Inpatient Hospital Update for FY 2012

A. Final FY 2012 Inpatient Hospital Update

B. Final Update for SCHs and MDHs for FY 2012

C. Final FY 2012 Puerto Rico Hospital Update

D. Final Update for Hospitals Excluded From the IPPS

III. Secretary's Recommendation

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating Payments in Traditional Medicare

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)

Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of hospital inpatient stays under a prospective payment system (PPS). Under these PPSs, Medicare payment for hospital inpatient operating and capital-related costs is made at predetermined, specific rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups (DRGs).

The base payment rate is comprised of a standardized amount that is dividedinto a labor-related share and a nonlabor-related share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located. If the hospital is located in Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-living adjustment factor. This base payment rate is multiplied by the DRG relative weight.

If the hospital treats a high percentage of certain low-income patients, it receives a percentage add-on payment applied to the DRG-adjusted base payment rate. This add-on payment, known as the disproportionate share hospital (DSH) adjustment, provides for a percentage increase in Medicare payments to hospitals that qualify under either of two statutory formulas designed to identify hospitals that serve a disproportionate share of low-income patients. For qualifying hospitals, the amount of this adjustment varies based on the outcome of the statutory calculations.

If the hospital is an approved teaching hospital, it receives a percentage add-on payment for each case paid under the IPPS, known as the indirect medical education (IME) adjustment. This percentage varies, depending on the ratio of residents to beds.

Additional payments may be made for cases that involve new technologies or medical services that have been approved for special add-on payments. To qualify, a new technology or medical service must demonstrate that it is a substantial clinical improvement over technologies or services otherwise available, and that, absent an add-on payment, it would be inadequately paid under the regular DRG payment.

The costs incurred by the hospital for a case are evaluated to determine whether the hospital is eligible for an additional payment as an outlier case. This additional payment is designed to protect the hospital from large financial losses due to unusually expensive cases. Any eligible outlier payment is added to the DRG-adjusted base payment rate, plus any DSH, IME, and new technology or medical service add-on adjustments.

Although payments to most hospitals under the IPPS are made on the basis of the standardized amounts, some categories of hospitals are paid in whole or in part based on their hospital-specific rate, which is determined from their costs in a base year. For example, sole community hospitals (SCHs) receive the higher of a hospital-specific rate based on their costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the standardized amount. Through and including FY 2006, a Medicare-dependent, small rural hospital (MDH) received the higher of the Federal rate or the Federal rate plus 50 percent of the amount by which the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 hospital-specific rate. As discussed below, for discharges occurring on or after October 1, 2007, but before October 1, 2012, an MDH will receive the higher of the Federal rate or the Federal rate plus 75 percent of the amount by which the Federal rate is exceeded by the highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. SCHs are the sole source of care in their areas, and MDHs are a major source of care for Medicare beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that is located more than 35 road miles from another hospital or that, by reason of factors such as isolated location, weather conditions, travel conditions, or absence of other like hospitals (as determined by the Secretary), is the sole source of hospital inpatient services reasonably available to Medicare beneficiaries. In addition, certain rural hospitals previously designated by the Secretary as essential access community hospitals are considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is located in a rural area, has not more than 100 beds, is not an SCH, and has a high percentage of Medicare discharges (not less than 60 percent of its inpatient days or discharges in its cost reporting year beginning in FY 1987 or in two of its three most recently settled Medicare cost reporting years). Both of these categories of hospitals are afforded this special payment protection in order to maintain access to services for beneficiaries.

Section 1886(g) of the Act requires the Secretary to pay for the capital-related costs of inpatient hospital services “in accordance with a prospective payment system established by the Secretary.” The basic methodology for determining capital prospective payments is set forth in our regulations at 42 CFR 412.308 and 412.312. Under the capital IPPS, payments are adjusted by the same DRG for the case as they are under the operating IPPS. Capital IPPS payments are also adjusted for IME and DSH, similar to the adjustments made under the operating IPPS. In addition, hospitals may receive outlier payments for those cases that have unusually high costs.

The existing regulations governing payments to hospitals under the IPPS are located in 42 CFR Part 412, Subparts A through M.

2. Hospitals and Hospital Units Excluded From the IPPS

Under section 1886(d)(1)(B) of the Act, as amended, certain hospitals and hospital units are excluded from the IPPS. These hospitals and units are: Rehabilitation hospitals and units; long-term care hospitals (LTCHs); psychiatric hospitals and units; children's hospitals; and cancer hospitals. Religious nonmedical health care institutions (RNHCIs) are also excluded from the IPPS. Various sections of the Balanced Budget Act of 1997 (BBA, Public Law 105-33), the Medicare, Medicaid and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs for rehabilitation hospitals and units (referred to as inpatient rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and units (referred to as inpatient psychiatric facilities (IPFs)). (We note that the annual updates to the LTCH PPS are now included as part of the IPPS annual update document. Updates to the IRF PPS and IPF PPS are issued as separate documents.) Children's hospitals, cancer hospitals, and RNHCIs continue to be paid solely under a reasonable cost-based system subject to a rate-of-increase ceiling on inpatient operating costs per discharge.

The existing regulations governing payments to excluded hospitals and hospital units are located in 42 CFR Parts 412 and 413.

3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)

The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) effective for cost reporting periods beginning on or after October 1, 2002. The LTCH PPS was established under the authority of sections 123(a) and (c) of Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as codified under section 1886(m)(1) of the Act). During the 5-year (optional) transition period, a LTCH's payment under the PPS was based on an increasing proportion of the LTCH Federal rate with a corresponding decreasing proportion based on reasonable cost principles. Effective for cost reporting periods beginning on or after October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. The existing regulations governing payment under the LTCH PPS are located in 42 CFR Part 412, Subpart O. BeginningOctober 1, 2009, we issue the annual updates to the LTCH PPS in the same documents that update the IPPS (73 FR 26797 through 26798).

4. Critical Access Hospitals (CAHs)

Under sections 1814(l), 1820, and 1834(g) of the Act, payments are made to critical access hospitals (CAHs) (that is, rural hospitals or facilities that meet certain statutory requirements) for inpatient and outpatient services are generally based on 101 percent of reasonable cost. Reasonable cost is determined under the provisions of section 1861(v)(1)(A) of the Act and existing regulations under 42 CFR Parts 413 and 415.

5. Payments for Graduate Medical Education (GME)

Under section 1886(a)(4) of the Act, costs of approved educational activities are excluded from the operating costs of inpatient hospital services. Hospitals with approved graduate medical education (GME) programs are paid for the direct costs of GME in accordance with section 1886(h) of the Act. The amount of payment for direct GME costs for a cost reporting period is based on the hospital's number of residents in that period and the hospital's costs per resident in a base year. The existing regulations governing payments to the various types of hospitals are located in 42 CFR Part 413.

B. Provisions of the Patient Protection and Affordable Care Act (Pub. L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) Applicable to FY 2012

The Patient Protection and Affordable Care Act (Pub. L. 111-148), enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010, made a number of changes that affect the IPPS and the LTCH PPS. (Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as the “Affordable Care Act.”) A number of the provisions of the Affordable Care Act affect the updates to the IPPS and the LTCH PPS and providers and suppliers. The provisions of the Affordable Care Act that were applicable to the IPPS and the LTCH PPS for FYs 2010 and 2011 were implemented in the following documents:

On June 2, 2010, we issued in theFederal Registera notice (75 FR 31118) that contained the final wage indices, hospital reclassifications, payment rates, impacts, and other related tables, effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, which were required by or directly resulted from implementation of provisions of the Affordable Care Act.

On August 16, 2010, we issued in theFederal Registera final rule (75 FR 50042) that implemented provisions of the Affordable Care Act applicable to the IPPS and LTCH/PPS for FY 2011.

In this final rule, we are implementing the following provisions (or portions of the following provisions) of the Affordable Care Act that are applicable to the IPPS and LTCH PPS for FY 2012:

  • Section 3001 of Public Law 111-148, which provides for establishment of a hospital value-based purchasing program and applicable measures for value-based incentive payments with respect to discharges occurring during FY 2013.
  • Section 3004 of Public Law 111-148, which provides for the submission of quality data for LTCHs beginning in FY 2013 in order to receive the full annual update to the payment rates beginning with FY 2014 and the establishment of quality data measures by FY 2012 for the FY 2014 payment determination.
  • Section 3025 of Public Law 111-148, which provides for a hospital readmissions reduction program and related quality data reporting measures.
  • Section 3124 of Public Law 111-148, which provides for extension of the Medicare-dependent, small rural hospital (MDH) program through FY 2012.
  • Section 3401 of Public Law 111-148, which provides for the incorporation of productivity improvements into the market basket updates for IPPS hospitals and LTCHs.

In addition, we are continuing in FY 2012 to implement the following provisions, which were initiated in FY 2011:

  • Section 10324 of Public Law 111-148, which provided for a wage adjustment for hospitals located in frontier States.
  • Sections 3401 and 10319 of Public Law 111-148 and section 1105 of Public Law 111-152, which revise certain market basket update percentages for IPPS and LTCH PPS payment rates for FY 2012.
  • Sections 3125 and 10314 of Public Law 111-148, which provide for temporary percentage increases in payment adjustments to low-volume hospitals for discharges occurring in FY 2012.
  • Section 1109 of Public Law 111-152, which provides for additional payments in FY 2012 for qualifying hospitals in the lowest quartile of per capita Medicare spending.
  • Section 5503 of Public Law 111-148, as amended by Public Law 111-152 and section 203 of Public Law 111-309, which provides for the reduction in FTE resident caps for direct GME under Medicare for certain hospitals, and to authorize the “redistribution” of the estimated number of FTE resident slots to other qualified hospitals. In addition, section 5503 requires the application of these provisions to IME in the same manner as the FTE resident caps for direct GME.

C. Issuance of a Notice of Proposed Rulemaking

The May 5, 2011Federal Register(76 FR 25788) included the proposed rule that set forth proposed changes to the Medicare IPPS for operating costs and for capital-related costs of acute care hospitals in FY 2012. We also set forth proposed changes relating to payments for IME costs and payments to certain hospitals that continue to be excluded from the IPPS and paid on a reasonable cost basis. In addition, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2012.

Below is a summary of the major changes that we proposed to make:

1. Proposed Changes to MS-DRG Classifications and Recalibrations of Relative Weights

In section II. of the preamble of the proposed rule, we included—

  • Proposed changes to MS-DRG classifications based on our yearly review.
  • Proposed application of the documentation and coding adjustment for FY 2012 resulting from implementation of the MS-DRG system.
  • A discussion of the Research Triangle Institute, International (RTI) reports and recommendations relating to charge compression.
  • Proposed recalibrations of the MS-DRG relative weights.
  • Proposed changes to hospital-acquired conditions (HACs) and a listing and discussion of HACs, including infections, that would be subject to the statutorily required quality adjustment in MS-DRG payments for FY 2012.

We discussed the FY 2012 status of new technologies approved for add-on payments for FY 2011 and presented our evaluation and analysis of the FY 2012 applicants for add-on payments for high-cost new medical services and technologies (including public input, as directed by Public Law 108-173, obtained in a town hall meeting).

2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals

In section III. of the preamble to the proposed rule, we proposed revisions to the wage index for acute care hospitals and the annual update of the wage data. Specific issues addressed included the following:

  • The proposed FY 2012 wage index update using wage data from cost reporting periods beginning in FY 2008.
  • Analysis and implementation of the proposed FY 2012 occupational mix adjustment to the wage index for acute care hospitals, including discussion of the 2010 occupational mix survey.
  • A proposal to change the reporting requirements for pension costs for the Medicare wage index.
  • Proposed revisions to the wage index for acute care hospitals based on hospital redesignations and reclassifications.
  • The proposed adjustment to the wage index for acute care hospitals for FY 2012 based on commuting patterns of hospital employees who reside in a county and work in a different area with a higher wage index.
  • The timetable for reviewing and verifying the wage data used to compute the proposed FY 2012 hospital wage index.
  • Determination of the labor-related share for the proposed FY 2012 wage index.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs and GME Costs

In section IV. of the preamble of the proposed rule, we discussed a number of the provisions of the regulations in 42 CFR Parts 412, 413, and 476, including the following:

  • The reporting of hospital quality data under the Hospital Inpatient Quality Reporting (IQR) Program as a condition for receiving the full annual payment update increase.
  • The proposed implementation of the Hospital Value-Based Purchasing Program measures.
  • The proposed establishment of hospital readmission measures for reporting of hospital quality data.
  • The proposed updated national and regional case-mix values and discharges for purposes of determining RRC status.
  • The statutorily required IME adjustment factor for FY 2012.
  • Proposed payment adjustment for low-volume hospitals.
  • Proposal for counting hospice days in the formula for determining the payment adjustment for disproportionate share hospitals.
  • Proposal for making additional payments for qualifying hospitals with lowest per enrollee Medicare spending for FY 2012.
  • Proposal to clarify ESRD add-on payment requirements based on cost report requirements.
  • Proposal relating to changes to the reporting requirements for pension costs for Medicare cost-finding purposes.
  • Proposal to implement statutory change to the hospital payment update, including incorporation of a productivity adjustment.
  • Discussion of the Rural Community Hospital Demonstration Program and a proposal for making a budget neutrality adjustment for the demonstration program.
  • Discussion of August 2010 interim final rule with comment period and further proposed changes relating to the 3-day payment window for payments for services provided to outpatients who are later admitted as inpatients.
4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs

In section V. of the preamble to the proposed rule, we discussed the proposed payment policy requirements for capital-related costs and capital payments to hospitals for FY 2012 and the proposed MS-DRG documentation and coding adjustment for FY 2012.

5. Proposed Changes to the Payment Rates for Certain Excluded Hospitals: Rate-of-Increase Percentages

In section VI. of the preamble of the proposed rule, we discussed proposed changes to payments to certain excluded hospitals. In addition, we discussed proposed changes relating to payment for TEFRA services furnished under arrangements and payment for ambulance services furnished by CAH-owned and operated entities.

6. Proposed Changes to the LTCH PPS

In section VII. of the preamble of the proposed rule, we set forth proposed changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for FY 2012, including the annual update of the MS-LTC-DRG classifications and relative weights for use under the LTCH PPS for FY 2012 and the proposed rebasing and revising of the market basket for LTCHs. In addition, we set forth proposals for implementing the quality data reporting program for LTCHs. We also proposed to clarify two policies regarding the calculation of the average length of stay requirement for LTCHs, and proposed a policy to address a LTCH moratorium issue.

7. Determining Proposed Prospective Payment Operating and Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2012 prospective payment rates for operating costs and capital-related costs for acute care hospitals. We also proposed to establish the threshold amounts for outlier cases. In addition, we addressed the proposed update factors for determining the rate-of-increase limits for cost reporting periods beginning in FY 2012 for certain hospitals excluded from the IPPS.

8. Determining Proposed Prospective Payment Rates for LTCHs

In the Addendum to the proposed rule, we set forth proposed changes to the amounts and factors for determining the proposed FY 2012 prospective standard Federal rate. We also proposed to establish the proposed adjustments for wage levels, the labor-related share, the cost-of-living adjustment, and high-cost outliers, including the fixed-loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH PPS.

9. Impact Analysis

In Appendix A of the proposed rule, we set forth an analysis of the impact that the proposed changes would have on affected acute care hospitals and LTCHs.

10. Recommendation of Update Factors for Operating Cost Rates of Payment for Hospital Inpatient Services

In Appendix B of the proposed rule, as required by sections 1886(e)(4) and (e)(5) of the Act, we provided our recommendations of the appropriate percentage changes for FY 2012 for the following:

  • A single average standardized amount for all areas for hospital inpatient services paid under the IPPS for operating costs of acute care hospitals (and hospital-specific rates applicable to SCHs and MDHs).
  • Target rate-of-increase limits to the allowable operating costs of hospital inpatient services furnished by certain hospitals excluded from the IPPS.
  • The standard Federal rate for hospital inpatient services furnished by LTCHs.
11. Discussion of Medicare Payment Advisory Commission Recommendations

Under section 1805(b) of the Act, MedPAC is required to submit a report to Congress, no later than March 1 of each year, in which MedPAC reviewsand makes recommendations on Medicare payment policies. MedPAC's March 2011 recommendations concerning hospital inpatient payment policies address the update factor for hospital inpatient operating costs and capital-related costs under the IPPS, for hospitals and distinct part hospital units excluded from the IPPS. We addressed these recommendations in Appendix B of the proposed rule. For further information relating specifically to the MedPAC March 2011 report or to obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit MedPAC's Web site at: http://www.medpac.gov.

D. Public Comments Received in Response to the FY 2012 IPPS/LTCH PPS Proposed Rule

We received approximately 385 timely pieces of correspondence containing multiple comments on the FY 2012 IPPS/LTCH PPS proposed rule. We note that some of these public comments were outside of the scope of the proposed rule. These out-of-scope public comments are not addressed with policy responses in this final rule. Summaries of the public comments that are within the scope of the proposed rule and our responses to those comments are set forth in the various sections of this final rule under the appropriate heading.

E. Finalization of Interim Final Rule With Comment Period on Revisions to the Reductions and Increases to Hospitals' FTE Resident Caps for Graduate Medical Education Payment Purposes

On March 14, 2011, we issued in theFederal Register(76 FR 13515) an interim final rule with comment period to implement section 203 of the Medicare and Medicaid Extenders Act of 2010 (MMEA), Public Law 111-309, relating to the treatment of teaching hospitals that are members of the same Medicare graduate medical education (GME) affiliated groups for the purpose of determining possible full-time equivalent (FTE) resident cap reductions. We received nine timely pieces of correspondence in response this interim final rule with comment period. In section IV.R. of this document, we are summarizing and responding to these public comments and are finalizing the policies contained in the interim final rule with comment period without modification.

II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG) Classifications and Relative Weights

A. Background

Section 1886(d) of the Act specifies that the Secretary shall establish a classification system (referred to as DRGs) for inpatient discharges and adjust payments under the IPPS based on appropriate weighting factors assigned to each DRG. Therefore, under the IPPS, Medicare pays for inpatient hospital services on a rate per discharge basis that varies according to the DRG to which a beneficiary's stay is assigned. The formula used to calculate payment for a specific case multiplies an individual hospital's payment rate per case by the weight of the DRG to which the case is assigned. Each DRG weight represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs.

Congress recognized that it would be necessary to recalculate the DRG relative weights periodically to account for changes in resource consumption. Accordingly, section 1886(d)(4)(C) of the Act requires that the Secretary adjust the DRG classifications and relative weights at least annually. These adjustments are made to reflect changes in treatment patterns, technology, and any other factors that may change the relative use of hospital resources.

B. MS-DRG Reclassifications

1. General

As discussed in the preamble to the FY 2008 IPPS final rule with comment period (72 FR 47138), we focused our efforts in FY 2008 on making significant reforms to the IPPS consistent with the recommendations made by MedPAC in its “Report to the Congress, Physician-Owned Specialty Hospitals” in March 2005. MedPAC recommended that the Secretary refine the entire DRG system by taking severity of illness into account and applying hospital-specific relative value (HSRV) weights to DRGs. (1) We began this reform process by adopting cost-based weights over a 3-year transition period beginning in FY 2007 and making interim changes to the DRG system for FY 2007 by creating 20 new CMS DRGs and modifying 32 other DRGs across 13 different clinical areas involving nearly 1.7 million cases. As described in more detail below, these refinements were intermediate steps towards comprehensive reform of both the relative weights and the DRG system as we undertook further study. For FY 2008, we adopted 745 new Medicare Severity DRGs (MS-DRGs) to replace the CMS DRGs. We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system, based on severity levels of illness, was established (72 FR 47141).

Currently, cases are classified into MS-DRGs for payment under the IPPS based on the following information reported by the hospital: The principal diagnosis, up to eight additional diagnoses, and up to six procedures performed during the stay. (We refer readers to section II.G.11.c. of this final rule for a discussion of our efforts to increase our internal systems capacity to process diagnosis and procedures on hospital claims to 25 diagnosis codes and 25 procedure codes prior to the use of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure coding, effective October 1, 2013.) In a small number of MS-DRGs, classification is also based on the age, sex, and discharge status of the patient. The diagnosis and procedure information is reported by the hospital using codes from the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) prior to October 1, 2013. We refer readers to section II.G.11.b. of this final rule for a reference to the replacement of ICD-9-CM, Volumes 1 and 2, including the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3, with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and ICD-10-PCS Guidelines for Coding and Reporting, effective October 1, 2013 (FY 2014).

The process of developing the MS-DRGs was begun by dividing all possible principal diagnoses into mutually exclusive principal diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The MDCs were formulated by physician panels to ensure that the DRGs would be clinically coherent. The diagnoses in each MDC correspond to a single organ system or etiology and, in general, are associated with a particular medical specialty. Thus, in order to maintain the requirement of clinical coherence, no final MS-DRG could contain patients in different MDCs. For example, MDC 6 is Diseases and Disorders of the Digestive System. This approach is used because clinical care is generally organized inaccordance with the organ system affected. However, some MDCs are not constructed on this basis because they involve multiple organ systems (for example, MDC 22 (Burns)). For FY 2012, cases will be assigned to one of 751 MS-DRGs in 25 MDCs. The table below lists the 25 MDCs.

Major Diagnostic Categories
1Diseases and Disorders of the Nervous System.
2Diseases and Disorders of the Eye.
3Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
4Diseases and Disorders of the Respiratory System.
5Diseases and Disorders of the Circulatory System.
6Diseases and Disorders of the Digestive System.
7Diseases and Disorders of the Hepatobiliary System and Pancreas.
8Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
9Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
10Endocrine, Nutritional and Metabolic Diseases and Disorders.
11Diseases and Disorders of the Kidney and Urinary Tract.
12Diseases and Disorders of the Male Reproductive System.
13Diseases and Disorders of the Female Reproductive System.
14Pregnancy, Childbirth, and the Puerperium.
15Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
16Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.
17Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
18Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
19Mental Diseases and Disorders.
20Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
21Injuries, Poisonings, and Toxic Effects of Drugs.
22Burns.
23Factors Influencing Health Status and Other Contacts with Health Services.
24Multiple Significant Trauma.
25Human Immunodeficiency Virus Infections.

In general, cases are assigned to an MDC based on the patient's principal diagnosis before assignment to an MS-DRG. However, under the most recent version of the Medicare GROUPER (Version 28.0), there are 13 MS-DRGs to which cases are directly assigned on the basis of ICD-9-CM procedure codes. These MS-DRGs are for heart transplant or implant of heart assist systems; liver and/or intestinal transplants; bone marrow transplants; lung transplants; simultaneous pancreas/kidney transplants; pancreas transplants; and tracheostomies. Cases are assigned to these MS-DRGs before they are classified to an MDC. The table below lists the 13 current pre-MDCs.

Pre-Major Diagnostic Categories
MS-DRG 001Heart Transplant or Implant of Heart Assist System with MCC.
MS-DRG 002Heart Transplant or Implant of Heart Assist System without MCC.
MS-DRG 003ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 004Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis with Major O.R.
MS-DRG 005Liver Transplant with MCC or Intestinal Transplant.
MS-DRG 006Liver Transplant without MCC.
MS-DRG 007Lung Transplant.
MS-DRG 008Simultaneous Pancreas/Kidney Transplant.
MS-DRG 009Bone Marrow Transplant.
MS-DRG 010Pancreas Transplant.
MS-DRG 011Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC.
MS-DRG 012Tracheostomy for Face, Mouth, and Neck Diagnoses with CC.
MS-DRG 013Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC.

Once the MDCs were defined, each MDC was evaluated to identify those additional patient characteristics that would have a consistent effect on hospital resource consumption. Because the presence of a surgical procedure that required the use of the operating room would have a significant effect on the type of hospital resources used by a patient, most MDCs were initially divided into surgical DRGs and medical DRGs. Surgical DRGs are based on a hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. Medical DRGs generally are differentiated on the basis of diagnosis and age (0 to 17 years of age or greater than 17 years of age). Some surgical and medical DRGs are further differentiated based on the presence or absence of a complication or comorbidity (CC) or a major complication or comorbidity (MCC).

Generally, nonsurgical procedures and minor surgical procedures that are not usually performed in an operating room are not treated as O.R. procedures. However, there are a few non-O.R. procedures that do affect MS-DRGassignment for certain principal diagnoses. An example is extracorporeal shock wave lithotripsy for patients with a principal diagnosis of urinary stones. Lithotripsy procedures are not routinely performed in an operating room. Therefore, lithotripsy codes are not classified as O.R. procedures. However, our clinical advisors believe that patients with urinary stones who undergo extracorporeal shock wave lithotripsy should be considered similar to other patients who undergo O.R. procedures. Therefore, we treat this group of patients similar to patients undergoing O.R. procedures.

Once the medical and surgical classes for an MDC were formed, each diagnosis class was evaluated to determine if complications or comorbidities would consistently affect hospital resource consumption. Each diagnosis was categorized into one of three severity levels. These three levels include a major complication or comorbidity (MCC), a complication or comorbidity (CC), or a non-CC. Physician panels classified each diagnosis code based on a highly iterative process involving a combination of statistical results from test data as well as clinical judgment. As stated earlier, we refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full detailed discussion of how the MS-DRG system was established based on severity levels of illness (72 FR 47141).

A patient's diagnosis, procedure, discharge status, and demographic information is entered into the Medicare claims processing systems and subjected to a series of automated screens called the Medicare Code Editor (MCE). The MCE screens are designed to identify cases that require further review before classification into an MS-DRG.

After patient information is screened through the MCE and further development of the claim is conducted, the cases are classified into the appropriate MS-DRG by the Medicare GROUPER software program. The GROUPER program was developed as a means of classifying each case into an MS-DRG on the basis of the diagnosis and procedure codes and, for a limited number of MS-DRGs, demographic information (that is, sex, age, and discharge status).

After cases are screened through the MCE and assigned to an MS-DRG by the GROUPER, the PRICER software calculates a base MS-DRG payment. The PRICER calculates the payment for each case covered by the IPPS based on the MS-DRG relative weight and additional factors associated with each hospital, such as IME and DSH payment adjustments. These additional factors increase the payment amount to hospitals above the base MS-DRG payment.

The records for all Medicare hospital inpatient discharges are maintained in the Medicare Provider Analysis and Review (MedPAR) file. The data in this file are used to evaluate possible MS-DRG classification changes and to recalibrate the MS-DRG weights. However, in the FY 2000 IPPS final rule (64 FR 41499 and 41500), we discussed a process for considering non-MedPAR data in the recalibration process. We stated that for use of non-MedPAR data to be feasible for purposes of DRG recalibration and reclassification, the data must, among other things: (1) Be independently verified; (2) reflect a complete set of cases (or a representative sample of cases); and (3) enable us to calculate appropriate DRG relative weights and ensure that cases are classified to the “correct” DRG, and to one DRG only, in the recalibration process. Further, in order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. The time necessary to do so depend upon the nature and quality of the non-MedPAR data submitted. Generally, however, a significant sample of the non-MedPAR data should be submitted by mid-October for consideration in conjunction with the next year's proposed rule. This date allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. Subsequently, a complete non-MedPAR database should be submitted by early December for consideration in conjunction with the next year's proposed rule.

As we indicated above, for FY 2008, we made significant improvements in the DRG system to recognize severity of illness and resource usage by adopting MS-DRGs that were reflected in the FY 2008 GROUPER, Version 25.0, and were effective for discharges occurring on or after October 1, 2007. Our MS-DRG analysis for the FY 2012 proposed rule was based on data from the September 2010 update of the FY 2010 MedPAR file, which contained hospital bills received through September 30, 2010, for discharges occurring through September 30, 2010. For this FY 2012 final rule, our MS-DRG analysis is based on data from the March 2011 update of the FY 2010 MedPAR file, which contained hospital bills received through March 31, 2011, for discharges occurring through September 30, 2010.

2. Yearly Review for Making MS-DRG Changes

Many of the changes to the MS-DRG classifications we make annually are the result of specific issues brought to our attention by interested parties. We encourage individuals with comments about MS-DRG classifications to submit these comments no later than early December of each year so they can be carefully considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. Therefore, similar to the timetable for interested parties to submit non-MedPAR data for consideration in the MS-DRG recalibration process, comments about MS-DRG classification issues should be submitted no later than early December in order to be considered and possibly included in the next annual proposed rule updating the IPPS.

The actual process of forming the MS-DRGs was, and will likely continue to be, highly iterative, involving a combination of statistical results from test data combined with clinical judgment. In the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described in detail the process we used to develop the MS-DRGs that we adopted for FY 2008. In addition, in deciding whether to make further modification to the MS-DRGs for particular circumstances brought to our attention, we considered whether the resource consumption and clinical characteristics of the patients with a given set of conditions are significantly different than the remaining patients in the MS-DRG. We evaluated patient care costs using average charges and lengths of stay as proxies for costs and relied on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. In evaluating resource costs, we considered both the absolute and percentage differences in average charges between the cases we selected for review and the remainder of cases in the MS-DRG. We also considered variation in charges within these groups; that is, whether observed average differences were consistent across patients or attributable to cases that were extreme in terms of charges or length of stay, or both. Further, we considered the number of patients who will have a given set of characteristics and generally preferred not to create a new MS-DRG unless it would include a substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed a numberof recommendations made by MedPAC regarding revisions to the DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 through 47939; and 72 FR 47140 through 47189). As we noted in the FY 2006 IPPS final rule, we had insufficient time to complete a thorough evaluation of these recommendations for full implementation in FY 2006. However, we did adopt severity-weighted cardiac DRGs in FY 2006 to address public comments on this issue and the specific concerns of MedPAC regarding cardiac surgery DRGs. We also indicated that we planned to further consider all of MedPAC's recommendations and thoroughly analyze options and their impacts on the various types of hospitals in the FY 2007 IPPS proposed rule.

For FY 2007, we began this process. In the FY 2007 IPPS proposed rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 2008 (if not earlier). Based on public comments received on the FY 2007 IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 IPPS final rule (71 FR 47906 through 47912), we discussed several concerns raised by public commenters regarding the proposal to adopt CS DRGs. We acknowledged the many public comments suggesting the logic of Medicare's DRG system should continue to remain in the public domain as it has since the inception of the PPS. We also acknowledged concerns about the impact on hospitals and software vendors of moving to a proprietary system. Several commenters suggested that CMS refine the existing DRG classification system to preserve the many policy decisions that were made over the last 20 years and were already incorporated into the DRG system, such as complexity of services and new device technologies. Consistent with the concerns expressed in the public comments, this option had the advantage of using the existing DRGs as a starting point (which was already familiar to the public) and retained the benefit of many DRG decisions that were made in recent years. We stated our belief that the suggested approach of incorporating severity measures into the existing DRG system was a viable option that would be evaluated.

Therefore, we decided to make interim changes to the existing DRGs for FY 2007 by creating 20 new DRGs involving 13 different clinical areas that would significantly improve the CMS DRG system's recognition of severity of illness. We also modified 32 DRGs to better capture differences in severity. The new and revised DRGs were selected from 40 existing CMS DRGs that contained 1,666,476 cases and represented a number of body systems. In creating these 20 new DRGs, we deleted 8 existing DRGs and modified 32 existing DRGs. We indicated that these interim steps for FY 2007 were being taken as a prelude to more comprehensive changes to better account for severity in the DRG system by FY 2008.

In the FY 2007 IPPS final rule (71 FR 47898), we indicated our intent to pursue further DRG reform through two initiatives. First, we announced that we were in the process of engaging a contractor to assist us with evaluating alternative DRG systems that were raised as potential alternatives to the CMS DRGs in the public comments. Second, we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes as part of making further refinements to the current CMS DRGs to better recognize severity of illness based on the work that CMS (then HCFA) did in the mid-1990's in connection with adopting severity DRGs. We describe below the progress we have made on these two initiatives and our actions for FYs 2008, 2009, 2010, and 2011, and our proposed and final actions for FY 2012 based on our continued analysis of reform of the DRG system. We note that the adoption of the MS-DRGs to better recognize severity of illness has implications for the outlier threshold, the application of the postacute care transfer policy, the measurement of real case-mix versus apparent case-mix, and the IME and DSH payment adjustments. We discuss these implications for FY 2012 in other sections of this preamble and in the Addendum to this final rule.

In the FY 2007 IPPS proposed rule, we discussed MedPAC's recommendations to move to a cost-based HSRV weighting methodology using HSRVs beginning with the FY 2007 IPPS proposed rule for determining the DRG relative weights. Although we proposed to adopt the HSRV weighting methodology for FY 2007, we decided not to adopt the proposed methodology in the final rule after considering the public comments we received on the proposal. Instead, in the FY 2007 IPPS final rule, we adopted a cost-based weighting methodology without the HSRV portion of the proposed methodology. The cost-based weights were adopted over a 3-year transition period in1/3increments between FY 2007 and FY 2009. In addition, in the FY 2007 IPPS final rule, we indicated our intent to further study the HSRV-based methodology as well as other issues brought to our attention related to the cost-based weighting methodology adopted in the FY 2007 final rule. There was significant concern in the public comments that our cost-based weighting methodology does not adequately account for charge compression—the practice of applying a higher percentage charge markup over costs to lower cost items and services and a lower percentage charge markup over costs to higher cost items and services. Further, public commenters expressed concern about potential inconsistencies between how costs and charges are reported on the Medicare cost reports and charges on the Medicare claims. In the FY 2007 IPPS final rule, we used costs and charges from the cost reports to determine departmental level cost-to-charge ratios (CCRs) which we then applied to charges on the Medicare claims to determine the cost-based weights. The commenters were concerned about potential distortions to the cost-based weights that would result from inconsistent reporting between the cost reports and the Medicare claims. After publication of the FY 2007 IPPS final rule, we entered into a contract with RTI International (RTI) to study both charge compression and the extent, if any, to which our methodology for calculating DRG relative weights is affected by inconsistencies between how hospitals report costs and charges on the cost reports and how hospitals report charges on individual claims. Further, as part of its study of alternative DRG systems, the RAND Corporation analyzed the HSRV cost-weighting methodology. We refer readers to section II.E. of the preamble of this final rule for a discussion of the issue of charge compression and the cost-weighting methodology for FY 2012.

We believe that revisions to the DRG system to better recognize severity of illness and changes to the relative weights based on costs rather than charges are improving the accuracy of the payment rates in the IPPS. We agree with MedPAC that these refinements should be pursued. Although we continue to caution that any prospective payment system based on grouping cases will always present some opportunities for providers to specialize in cases they believe have higher margins, we believe that the changes we have adopted and the continuing reforms we are proposing to make in this proposed rule for FY 2012 will improve payment accuracy and reduce financial incentives to create specialty hospitals.

We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a full discussion of how the MS-DRG system was established basedon severity levels of illness (72 FR 47141).

D. FY 2012 MS-DRG Documentation and Coding Adjustment, Including the Applicability to the Hospital-Specific Rates and the Puerto Rico-Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90

As we discussed earlier in this preamble, we adopted the MS-DRG patient classification system for the IPPS, effective October 1, 2007, to better recognize severity of illness in Medicare payment rates for acute care hospitals. The adoption of the MS-DRG system resulted in the expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, there are 751 MS-DRGs, which include 4 additional MS-DRGs that we are adopting for FY 2012.) By increasing the number of MS-DRGs and more fully taking into account patient severity of illness in Medicare payment rates for acute care hospitals, MS-DRGs encourage hospitals to improve their documentation and coding of patient diagnoses.

In the FY 2008 IPPS final rule with comment period (72 FR 47175 through 47186), we indicated that the adoption of the MS-DRGs had the potential to lead to increases in aggregate payments without a corresponding increase in actual patient severity of illness due to the incentives for additional documentation and coding. In that final rule with comment period, we exercised our authority under section 1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget neutrality by adjusting the national standardized amount, to eliminate the estimated effect of changes in coding or classification that do not reflect real changes in case-mix. Our actuaries estimated that maintaining budget neutrality required an adjustment of −4.8 percent to the national standardized amount. We provided for phasing in this −4.8 percent adjustment over 3 years. Specifically, we established prospective documentation and coding adjustments of −1.2 percent for FY 2008, −1.8 percent for FY 2009, and −1.8 percent for FY 2010.

On September 29, 2007, Congress enacted the TMA [Transitional Medical Assistance], Abstinence Education, and QI [Qualifying Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 7(a) of Public Law 110-90 reduced the documentation and coding adjustment made as a result of the MS-DRG system that we adopted in the FY 2008 IPPS final rule with comment period to −0.6 percent for FY 2008 and −0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not adjust the FY 2010 −1.8 percent documentation and coding adjustment promulgated in the FY 2008 IPPS final rule with comment period. To comply with section 7(a) of Public Law 110-90, we promulgated a final rule on November 27, 2007 (72 FR 66886) that modified the IPPS documentation and coding adjustment for FY 2008 to −0.6 percent, and revised the FY 2008 payment rates, factors, and thresholds accordingly. These revisions were effective on October 1, 2007.

For FY 2009, section 7(a) of Public Law 110-90 required a documentation and coding adjustment of −0.9 percent instead of the −1.8 percent adjustment established in the FY 2008 IPPS final rule with comment period. As discussed in the FY 2009 IPPS final rule (73 FR 48447) and required by statute, we applied a documentation and coding adjustment of −0.9 percent to the FY 2009 IPPS national standardized amount. The documentation and coding adjustments established in the FY 2008 IPPS final rule with comment period, as amended by Public Law 110-90, are cumulative. As a result, the −0.9 percent documentation and coding adjustment for FY 2009 was in addition to the −0.6 percent adjustment for FY 2008, yielding a combined effect of −1.5 percent.

2. Prospective Adjustment to the Average Standardized Amounts Required by Section 7(b)(1)(A) of Public Law 110-90

Section 7(b)(1)(A) of Public Law 110-90 requires that, if the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different than the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, the Secretary shall make an appropriate adjustment under section 1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average standardized amounts for subsequent fiscal years in order to eliminate the effect of such coding or classification changes. These adjustments are intended to ensure that future annual aggregate IPPS payments are the same as the payments that otherwise would have been made had the prospective adjustments for documentation and coding applied in FY 2008 and FY 2009 reflected the change that occurred in those years.

3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 Required by Public Law 110-90

If, based on a retroactive evaluation of claims data, the Secretary determines that implementation of the MS-DRG system resulted in changes in documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 or FY 2009 that are different from the prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an additional adjustment to the standardized amounts under section 1886(d) of the Act. This adjustment must offset the estimated increase or decrease in aggregate payments for FYs 2008 and 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustment applied under section 7(a) of Public Law 110-90. This adjustment is in addition to making an appropriate adjustment to the standardized amounts under section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) of Public Law 110-90. That is, these adjustments are intended to recoup (or repay, in the case of underpayments) spending in excess of (or less than) spending that would have occurred had the prospective adjustments for changes in documentation and coding applied in FY 2008 and FY 2009 precisely matched the changes that occurred in those years. Public Law 110-90 requires that the Secretary make these recoupment or repayment adjustments for discharges occurring during FYs 2010, 2011, and 2012.

4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data

In order to implement the requirements of section 7 of Public Law 110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that we planned a thorough retrospective evaluation of our claims data. We stated that the results of this evaluation would be used by our actuaries to determine any necessary payment adjustments to the standardized amounts under section 1886(d) of the Act to ensure the budget neutrality of the MS-DRGs implementation for FY 2008 and FY 2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR 23541 through 23542), we described our preliminary plan for a retrospective analysis of inpatient hospital claimsdata and invited public input on our proposed methodology.

In that proposed rule, we indicated that we intended to measure and corroborate the extent of the overall national average changes in case-mix for FY 2008 and FY 2009. We expected that the two largest parts of this overall national average change would be attributable to underlying changes in actual patient severity of illness and to documentation and coding improvements under the MS-DRG system. In order to separate the two effects, we planned to isolate the effect of shifts in cases among base DRGs from the effect of shifts in the types of cases within base DRGs.

The MS-DRGs divide the base DRGs into three severity levels (with MCC, with CC, and without CC); the previously used CMS DRGs had only two severity levels (with CC and without CC). Under the CMS DRG system, the majority of hospital discharges had a secondary diagnosis which was on the CC list, which led to the higher severity level. The MS-DRGs significantly changed the code lists of what was classified as an MCC or a CC. Many codes that were previously classified as a CC are no longer included on the MS-DRG CC list because the data and clinical review showed these conditions did not lead to a significant increase in resource use. The addition of a new level of high severity conditions, the MCC list, also provided a new incentive to code more precisely in order to increase the severity level. We anticipated that hospitals would examine the MS-DRG MCC and CC code lists and then work with physicians and coders on documentation and coding practices so that coders could appropriately assign codes from the highest possible severity level. We note that there have been numerous seminars and training sessions on this particular coding issue. The topic of improving documentation practices in order to code conditions on the MCC list was also discussed extensively by participants at the March 11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. Participants discussed their hospitals' efforts to encourage physicians to provide more precise documentation so that coders could appropriately assign codes that would lead to a higher severity level. Because we expected most of the documentation and coding changes under the MS-DRG system would occur in the secondary diagnoses, we believed that the shifts among base DRGs were less likely to be the result of the MS-DRG system and the shifts within base DRGs were more likely to be the result of the MS-DRG system. We also anticipated evaluating data to identify the specific MS-DRGs and diagnoses that contributed significantly to the documentation and coding payment effect and to quantify their impact. This step entailed analysis of the secondary diagnoses driving the shifts in severity within specific base DRGs.

In the FY 2009 IPPS proposed rule, we solicited public comments on the analysis plans described above, as well as suggestions on other possible approaches for performing a retrospective analysis to identify the amount of case-mix changes that occurred in FY 2008 and FY 2009 that did not reflect real increases in patient severity of illness.

A few commenters, including MedPAC, expressed support for the analytic approach described in the FY 2009 IPPS proposed rule. A number of other commenters expressed concerns about certain aspects of the approach and/or suggested alternate analyses or study designs. In addition, one commenter recommended that any determination or retrospective evaluation by the actuaries of the impact of the MS-DRGs on case-mix be open to public scrutiny prior to the implementation of the payment adjustments beginning in FY 2010.

We took these comments into consideration as we developed our proposed analysis plan, and in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24092 through 24101), we solicited public comment on our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 data for claims paid through December 2008. Based on this evaluation, our actuaries determined that implementation of the MS-DRG system resulted in a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we updated this analysis with FY 2008 data for claims paid through March 2009, and we noted that the estimates for all IPPS remained essentially the same to those in the proposed rule (42 FR 43770, 43775). Also, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 through 43772), we responded to comments on our methodology for the retrospective evaluation of FY 2008 claims data. We refer readers to that final rule for a detailed description of our analysis and prior responses to comments.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068), we performed the same analysis for FY 2009 claims data using the same methodology as we did for FY 2008 claims. We note that, in the FY 2011 IPPS/LTCH PPS proposed rule, we performed this analysis using FY 2009 claims paid through December 2009. In the FY 2011 IPPS/LTCH PPS final rule, we updated the analysis with FY 2009 claims paid through March 2010, as we discussed in the proposed rule. We note that, for all IPPS hospitals, other than those in Puerto Rico, the estimates were unchanged from those in the proposed rule. We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50068) for a detailed description of our analysis and prior responses to comments. The results of the analysis for the FY 2011 proposed and final rules provided additional support for our conclusion that the proposed 5.4 percent estimate accurately reflected the FY 2009 increases in documentation and coding under the MS-DRG system.

As in prior years, the FY 2008 and FY 2009 MedPAR files are available to the public to allow independent analysis of the FY 2008 and FY 2009 documentation and coding effect. Interested individuals may still order these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by clicking on MedPAR Limited Data Set (LDS)-Hospital (National). This Web page describes the file and provides directions and further detailed instructions for how to order.

Persons placing an order must send the following: A Letter of Request, the LDS Data Use Agreement and Research Protocol (refer to the Web site for further instructions), the LDS Form, and a check for $3,655 to:

Mailing address if using the U.S. Postal Service: Centers for Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. Box 7520,Baltimore, MD 21207-0520.

Mailing address if using express mail: Centers for Medicare & Medicaid Services, OFM/Division of Accounting—RDDC, 7500 Security Boulevard, C3-07-11, Baltimore, MD 21244-1850.

5. Prospective Adjustment for FY 2010 and Subsequent Years Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of the Act

Based on our evaluation of FY 2008 Medicare claims data that were most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, the estimated 2.5 percent change in FY 2008 case-mix due to changes indocumentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 exceeded the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), we solicited public comment on our proposal to make a −1.9 percent prospective adjustment to the standardized amounts under section 1886(d) of the Act to address the effects of documentation and coding changes unrelated to changes in real case-mix in FY 2008. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, in response to public comments, we indicated that we fully understood that our proposed adjustment of −1.9 percent would reduce the increase in payments that affected hospitals would have received in FY 2009 in the absence of the adjustment, and we determined that it would be appropriate to postpone adopting documentation and coding adjustments as authorized under section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the Act until a full analysis of case-mix changes could be completed. We refer readers to the FY 2010 IPPS/LTCH PPS final rule (74 FR 43767 through 43777) for a detailed description of our proposal, responses to comments, and finalized policy.

After analysis of the FY 2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 through 50073), we found a total prospective documentation and coding effect of 1.054. After accounting for the −0.6 percent and the −0.9 percent documentation and coding adjustments in FYs 2008 and 2009, we found a remaining documentation and coding effect of 3.9 percent. As we have discussed, an additional cumulative adjustment of −3.9 percent would be necessary to meet the requirements of section 7(b)(1)(A) of Public Law 110-90 to make an adjustment to the average standardized amounts in order to eliminate the full effect of the documentation and coding changes on future payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 7(b)(1)(A) does not specify when we must apply the prospective adjustment, but merely requires us to make an “appropriate” adjustment. Therefore, as we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50061), we believe we have some discretion as to the manner in which we apply the prospective adjustment of −3.9 percent. We indicated that applying the full prospective adjustment of −3.9 percent for FY 2011, in combination with the proposed recoupment adjustment of −2.9 percent in FY 2011 (discussed below) would require an aggregate adjustment of −6.8 percent. As we discuss elsewhere in this section II.D., and more extensively in the FY 2011 IPPS/LTCH PPS final rule, it has been our practice to moderate payment adjustments when necessary to mitigate the effects of significant downward adjustments on hospitals, to avoid what could be widespread, disruptive effects of such adjustments on hospitals. As we also discuss below in this section II.D., we are required to implement the remaining adjustment in section 7(b)(1)(B) of Public Law 110-90 no later than the FY 2012 rulemaking period, and accordingly, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed a recoupment adjustment under section 7(b)(1)(B) of −2.9 percent for FY 2011 (75 FR 23870 and 23871). Therefore, we stated that we believed it was appropriate to not implement any or all of the −3.9 percent prospective adjustment in FY 2011. Accordingly, we did not propose a prospective adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868 through 23870) for FY 2011. We note that, as a result, payments in FY 2011 (and in each future year until we implement the requisite adjustment) would be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90. Our actuaries estimate that this 3.9 percentage point increase will result in an aggregate payment of approximately $4 billion. We also noted that payments in FY 2010 were also expected to be 3.9 percent higher than they would have been if we had implemented an adjustment under section 7(b)(1)(A) of Public Law 110-90, which our actuaries estimated increased aggregate payments by approximately $4 billion in FY 2010.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25803 and 25804), we indicated that because further delay of this prospective adjustment will result in a continued accrual of unrecoverable overpayments, it was imperative that we proposed a prospective adjustment for FY 2012, while recognizing CMS' continued desire to mitigate the effects of any significant downward adjustments to hospitals. Therefore, we proposed a −3.15 percent prospective adjustment to the standardized amount to partially eliminate the full effect of the documentation and coding changes on future payments. Due to the offsetting nature of the remaining recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 (described below in section II.D.6. of this preamble), and after considering other payment adjustments to FY 2012 rates proposed elsewhere within the proposed rule, we indicated that we believe the proposed −3.15 percent adjustment would allow for a significant reduction in potential unrecoverable overpayments, yet would maintain a comparable adjustment level between FY 2011 and FY 2012, reflecting the applicable percentage increase with a documentation and coding adjustment. We stated that we recognize that an additional adjustment of −0.75 (3.9 minus 3.15) percent would be required in future rule making to complete the necessary −3.9 adjustment to meet CMS' statutory requirement under section 7(b)(1)(A) of Public Law 110-90. In the proposed rule, we indicated that we were not at that time proposing a timeline to implement the remainder of this prospective adjustment.

6. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 7(b)(1)(B) of Public Law 110-90

As discussed in section II.D.1. of this preamble, section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to make an adjustment to the standardized amounts under section 1886(d) of the Act to offset the estimated increase or decrease in aggregate payments for FY 2008 and FY 2009 (including interest) resulting from the difference between the estimated actual documentation and coding effect and the documentation and coding adjustments applied under section 7(a) of Public Law 110-90. This determination must be based on a retrospective evaluation of claims data.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule with comment period (74 FR 43773), we estimated a 2.5 percent change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008, exceeding the −0.6 percent prospective documentation and coding adjustment applied under section 7(a) of Public Law 110-90 by 1.9 percentage points. We stated that our actuaries had estimated that this 1.9 percentage point increase resulted in an increase in aggregate payments of approximately $2.2 billion in FY 2008. We did not propose to make an adjustment to the FY 2010 average standardized amounts to offset, in whole or in part, the estimated increase in aggregate payments for discharges occurring in FY 2008, but stated in the proposed rule that we intended to address this issue in future rulemaking. In the FY 2010 IPPS/RY 2010 LTCH PPSfinal rule (74 FR 43774), we stated that because we would not receive all FY 2009 claims data prior to publication of the final rule, we would address any increase or decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 after we performed a retrospective evaluation of the FY 2009 claims data. In response to public comments in FY 2010, we indicated that we recognized that any adjustment to account for the documentation and coding effect observed in the FY 2008 and FY 2009 claims data may result in significant future payment reductions for providers. However, we indicated that we are required under section 7(b)(1)(B) of Public Law 110-90 to recover the difference of actual documentation and coding effect in FY 2008 and FY 2009 that is greater than the prior adjustments. We agreed with the commenters who requested that CMS delay any adjustment and, for the reasons stated above, indicated that we expected to address this issue in the FY 2011 rulemaking. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43767 through 43777) for a detailed description of our proposal, responses to comments, and finalized policy.

As we indicated in the FY 2011 IPPS/LTCH PPS final rule, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 and FY 2009 exceeded the −0.6 and −0.9 percent prospective documentation and coding adjustments applied under section 7(a) of Public Law 110-90 for those 2 years, respectively, by 1.9 percentage points in FY 2008 and 3.9 percentage points in FY 2009. In total, this change exceeded the cumulative prospective adjustments by 5.8 (1.9 plus 3.9) percentage points. Our actuaries estimated that this 5.8 percentage point increase resulted in an increase in aggregate payments of approximately $6.9 billion. In the FY 2011 IPPS/LTCH PPS final rule, we noted that there may be a need to actuarially adjust the recoupment adjustment to accurately reflect accumulated interest. Therefore, we determined that an aggregate adjustment of −5.8 percent in FYs 2011 and 2012, subject to actuarial adjustment to reflect accumulated interest, would be necessary in order to meet the requirements of section 7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts for discharges occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount of the increase in aggregate payments (including interest) in FYs 2008 and 2009. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23871), we stated that we intended to take into account the need to reflect accumulated interest in proposing a recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90 for FY 2012.

It is often our practice to phase in rate adjustments over more than one year in order to moderate the effect on rates in any one year. Therefore, consistent with the policies that we have adopted in many similar cases, in the FY 2011 IPPS/LTCH PPS proposed rule, we proposed to make an adjustment to the standardized amount of −2.9 percent, representing approximately half of the aggregate adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this magnitude would allow us to moderate the effects on hospitals in one year while simultaneously making it possible to implement the entire adjustment within the timeframe required under section 7(b)(1)(B) of Public Law 110-90 (that is, no later than FY 2012).

Unlike the permanent prospective adjustment to the standardized amounts under section 7(b)(1)(A) of Public Law 110-90 described earlier, the recoupment adjustment to the standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is not cumulative, and, therefore, would be removed for subsequent fiscal years once we have completely offset the increase in aggregate payments for discharges for FY 2008 and FY 2009 expenditures. In keeping with our practice of moderating payment adjustments when necessary, we stated that we anticipated that the proposal of phasing in the recoupment adjustment will have an additional, and significant, moderating effect on implementing the requirements of section 7(b)(1)(B) of Public Law 110-90 for FY 2012.

In the FY 2011 IPPS/LTCH PPS proposed rule, we sought public comment on our proposal to offset part of the total 5.8 percent increase in aggregate payments (including interest) for discharges occurring in FY 2008 and FY 2009 resulting from the adoption of the MS-DRGs in FY 2011, noting that this proposal would result in a −2.9 percent adjustment to the standardized amount. We received numerous comments on our proposal, especially from national and regional hospital associations, hospital systems, and individual hospitals. MedPAC also commented on our proposal. We refer readers to the FY 2011 IPPS/LTCH PPS final rule with comment period (75 FR 50055 through 50073) for a detailed description of our analysis and prior responses to comments, and finalized policy.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50062 through 50068), we finalized the proposed adjustment to the standardized amount of −2.9 percent, which represented approximately half of the aggregate recoupment adjustment required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. We were persuaded by both the MedPAC's analysis, and our own review of the methodologies recommended by various commenters, that the methodology we employed to determine the required recoupment adjustment was sound. Since the statute required that we implement the entire recoupment adjustment no later than FY 2012, we have sought, as we commonly do, to moderate the potential impact on hospitals by phasing in the required adjustment over more than one year. As we stated in prior rulemaking, a major advantage of making the −2.9 percent adjustment to the standardized amount in FY 2011 was that, because the required recoupment adjustment is not cumulative, we anticipated removing the FY 2011 −2.9 percent adjustment from the rates (in other words, making a positive 2.9 percent adjustment to the rates) in FY 2012, at the same time that the law required us to apply the remaining approximately −2.9 percent adjustment required by section 7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring the FY 2011 −2.9 percent adjustment and then applying the remaining adjustment of approximately −2.9 percent, would effectively cancel each other out. The result of these two steps would be an aggregate adjustment of approximately 0.0 percent. While we stated in the FY 2011 IPPS/LTCH PPS final rule the need to potentially adjust the remaining −2.9 percent estimate to account for accumulated interest, our actuaries have determined that there has been no significant interest accumulation and that no additional adjustment will be required. Therefore, for FY 2012, pursuant to the timeframes set forth by section 7(b)(1)(B) of Public Law 110-90, and consistent with the discussion in the FY 2011 IPPS/LTCH PPS final rule, we proposed to complete the recoupment adjustment by implementing the remaining −2.9 percent adjustment, in addition to removing the effect of the −2.9 percent adjustment to the standardized amount finalized for FY 2011. Because these adjustments will, in effect, balance out, there will be no year-to-year change in the standardized amount due to this recoupment adjustment. As thisadjustment will complete the required recoupment for overpayments due to documentation and coding effects on discharges occurring in FYs 2008 and 2009, we anticipate removing the effect of this adjustment by adding 2.9 percent to the standardized amount in FY 2013. We continue to believe that this is a reasonable and fair approach that satisfies the requirements of the statute while substantially moderating the financial impact on hospitals.

Comment: One commenter, MedPAC, reiterated its general support for the methodology used by our actuaries to estimate the magnitude of documentation and coding effect on IPPS payments due to the adoption of the MS-DRG system. In its letter, MedPAC explained that the methodology used by our actuaries “is akin to comparing two sets of payments: What payments actually were in fiscal year 2009 under the 2009 MS-DRGs and relative weights; and what payments would have been in 2009 if MS-DRGs had not been adopted and CMS had continued to use the prior (2007) CMS DRGs and weights.” MedPAC noted that by taking the difference between these two sets of payments, the methodology is designed to capture “the new GROUPER's interaction with how hospitals changed their documentation and coding. After the adoption of MS-DRGs in 2008, hospitals switched from recording general descriptions of patients' chronic conditions—which no longer affect payments under MS-DRGs—to recording the specific acute manifestations of patients' chronic conditions, which trigger higher payments under MS-DRGs. However, the same changes in diagnosis documentation and coding have little or no effect on the CMI measured using the 2007 CMS-DRGs and weights. This is because in that version of the GROUPER, both acute manifestations of chronic conditions and general descriptions of chronic conditions trigger higher payments. In contrast, when hospitals had little incentive to change documentation and coding—in 2007, for example—the two CMIs are approximately equal.”

Consistent with its comments in prior years, MedPAC's comment noted that its analysis of Medicare hospital inpatient claims for 2007-2009 yielded similar estimates of the documentation and coding effect. MedPAC concluded that “CMS would need to reduce IPPS payments temporarily by 5.8 percent to recover overpayments that occurred in 2008 and 2009. CMS also expected that overpayments equal to 3.9 percent of annual IPPS payments would continue through 2010, 2011, and future years until CMS makes a prospective offsetting adjustment (−3.9 percent) to the IPPS payments rates.”

MedPAC's comment described potential circumstances in which the methodology used both by our actuaries and MedPAC could overestimate the documentation and coding effect, noting that these possible circumstances “could cause only a small change in the estimated effect of documentation changes.”

MedPAC stated, “In response to the new MS-DRGs, hospitals had an incentive to report diagnoses that count as CCs in the new system. MedPAC's argument is that hospitals may also have stopped reporting diagnoses that counted as CCs in the old system, but do not count in the new one.” In short, MedPAC argued that the disappearance of the general chronic condition codes could have caused the CMIs based on the old FY 2007 GROUPER and weights to be understated in FYs 2008 and 2009. Thus, because CMIs based on the 2007 GROUPER and weights are the denominators of the documentation change estimates, understatement would bias the estimates upward. However, understatement would occur only to the extent that hospitals, when coding: (1) Did not replace such general chronic condition codes with corresponding acute manifestation codes and (2) the patient had no other secondary diagnosis code that qualified as a CC in the old GROUPER and are now CCs or MCCs under the MS-DRGs.

MedPAC's analysis concluded that the maximum possible effect of this potential overestimation is 0.36 percent, and “that total overpayments due to documentation changes in 2008 and 2009 may have ranged from 5.1 to 5.8 percent of IPPS payments ($6.0 to $6.9 billion).”

MedPAC recommended that CMS slow the pace of the payment adjustments so that hospitals would receive a net 1 percent update in FY 2012, as it recommend in its March 2011 Report to Congress. Furthermore, MedPAC stated that legislation should be enacted to require the Secretary of Health and Human Services to adjust payments further to recover all overpayments that have occurred or will occur in FYs 2010, 2011, and 2012 because the prospective adjustment was not completed. MedPAC asserted that:

“To allow payments to increase due to documentation and coding changes would undermine Congressional policy on updates. If Congress wants more money to flow into the hospital sector, a higher update is the appropriate mechanism, not cumulative changes in documentation and coding. Indeed, allowing those changes to increase hospital payments through the back door could eventually discourage needed refinements to the case-mix system in a tight budget era. In other words, if more money inevitably leaks into the system every time case-mix is refined, then there may be pressure to stop refining. That would lead to inequities for both providers and patients.”

Response: We appreciate MedPAC's analysis and continued support of the methodology used to determine the documentation and coding effect, and we agree that this methodology appropriately isolates the documentation and coding effect from real case-mix. With the exception of the possible overstatement described above, we note that MedPAC's analysis yielded results similar to CMS' determination of the documentation and coding effect. Based on our evaluation of FY 2008 and FY 2009 claims, we continue to believe that $6.9 billion dollars in overpayments were made during the period of FY 2008 and 2009. We estimate that a recoupment adjustment totaling 5.8 percent is necessary to recover these overpayments, and that operating IPPS rates are currently overstated by 3.9 percent. We also note that section 7(b)(1)(B) of the TMA requires the agency to recover these overpayments by FY 2012 and that section 7(b)(1)(A) of the TMA requires the agency to adjust rates to ensure that aggregate payments do not continue to be overstated.

With regard to MedPAC's analysis regarding the possible overestimate of the documentation and coding effect, we note that MedPAC characterized the potential effect as “small” and provided no corroborating analysis or specific examples of when this scenario may have occurred. We consulted with our medical coding experts and were unable to identify specific examples to support MedPAC's hypothesis. We note that MedPAC stated in its comment letter that the potential for overestimation exists only to the extent that “hospitals (1) did not replace such general chronic condition codes with corresponding acute manifestation codes and (2) the patient had no other secondary diagnosis code that qualified as a CC in the old grouper.” We reviewed coding changes that occurred during the transition to MS-DRGs and were able to identify codes that would result in a CC prior to MS-DRGs but would not result in a CC in the MS-DRG system. However, we were unable to identify an instance where this would necessarily result in a lower MS-DRG assignment because more specific codes weredeveloped to support the more refined MS-DRG system and we would expect hospitals to use the more specific codes. For instance, congestive heart failure was a CC under CMS DRGs, but is not a CC under MS-DRGs. Under MS-DRGs, we started requiring more specific information on the type of heart failure in order to count this as a CC or MCC. Generally, under the MS-DRG system, the “unspecified” codes in a category no longer result in CCs.

We did not receive any other public comments regarding MedPAC's statements that we may have overestimated the effect of the documentation and coding by considering cases grouped under the MS-DRG system as having a higher severity due to being coded without appropriate CCs under the pre-MS-DRG system.

At this time, we believe it would not be appropriate to revise our estimates based solely on MedPAC's analysis without knowing of any specific examples of the scenario described above. Without this information, we cannot determine whether there was a sufficient volume of cases to cause a potential documentation and coding overestimate. However, we welcome specific examples from the public to possibly inform future rulemaking.

We acknowledge MedPAC's recommendation to provide hospitals with a net 1 percent update. As noted above, the comment restates MedPAC's recommendation from its March 2011 Report to Congress. We address this issue below in our response to comments by the provider community that expressed concern regarding the impact of various payment adjustments on hospitals.

We also acknowledge MedPAC's request that additional statutory authority be granted to the Secretary of Health and Human Services to recover overpayments made during subsequent fiscal years.

Lastly, we agree with MedPAC that it is important to continue refining the methodology of how case mix is measured to ensure payment accuracy. We note that in this final rule we discuss potential refinements to the MS-DRG relative weight system, and CMS' active engagement in implementing the ICD-10 system. These discussions illustrate the efforts the agency is undertaking to improve the ability to measure case mix precisely and to pay hospitals for inpatient services more accurately.

Comment: Most commenters, including national hospital associations, continued to acknowledge that there were documentation and coding increases in FY 2008 and FY 2009 that were in excess of the statutory 0.6 percent and 0.9 percent adjustments specified in section 7(a) of the TMA. However, as in prior rulemakings on this issue, most commenters again questioned the methodology employed by MedPAC and our actuaries to determine the magnitude of the excess.

We also received Congressional correspondence from numerous members of Congress stating that hospitals had expressed concerns regarding the CMS Actuary's methodology and requesting that CMS ensure that its methodology accurately reflects changes in patient severity prior to finalizing adjustments for documentation and coding in response to hospitals' concerns. Specifically, the correspondence suggested that CMS could consider alternative methodologies for estimating the effect of documentation and coding, including trend-based analysis and chart abstraction.

Several commenters stated that historical case mix trend is inconsistent with our estimate of the effect of the FY 2008 and FY 2009 documentation and coding changes due to the implementation of the MS-DRGs. One commenter stated “Our analysis, which used multiple years of patient claims, clearly shows that a significant portion of the change CMS found is actually the continuation of historical trends, rather than the effect of documentation and coding changes due to implementation of MS-DRGs. This analysis found a cumulative documentation and coding effect of 3.6 percent for FYs 2008 and 2009, as opposed to the 5.4 percent that CMS found.”

Several commenters submitted an historical case-mix trend analysis last year, which showed a documentation and coding effect of 2.3 percent. An analysis submitted by the same commenters this year showed a cumulative documentation and coding increase through FY 2009 of 3.6 percent. The commenters revised their analysis to respond to CMS comments made in last year's rule. Specifically, the national hospital associations stated that, “This year we make several modifications to that trend-based analysis to respond to CMS' critiques as enumerated in the FY 2011 inpatient PPS final rule. Given that we have addressed the agency's concerns, we are hopeful that it will give our methodology fresh consideration.” One hospital association also pointed out that CMS included an assumption regarding real case-mix growth in the adjustment for “changes in case-mix” in the capital update framework at § 412.308(c)(1)(ii) and suggested that the estimate made by our actuaries regarding documentation and coding be reduced by this assumption in order to maintain consistency with the capital update framework.

Commenters also examined the methodology used by our actuaries and MedPAC using index number theory. As stated by these commenters, “the relative case weights in a given grouper are like relative prices in a price index calculation (in fact they are relative prices for the different MS-DRGs) and the quantities of discharges in various MS-DRGs are like the quantities of goods in the price index calculation.” Commenters claimed that, based on index number theory, the methodology employed by MedPAC and our actuaries can only provide upper and lower bounds of the combined effect of documentation and coding and real case-mix change. MedPAC, however, indicated that knowledge of the 2007 MS-DRG GROUPER, the new MS-DRG GROUPER, historical documentation of patients' diagnoses, and the changes CMS made when it created the MS-DRGs can be used to narrow the range of the potential documentation and coding effect as described above, although they noted that these “could cause only a small change in the estimated effect of documentation changes.”

As in past years, several commenters indicated that CMS should use medical records data to distinguish documentation and coding changes from real case-mix changes. MedPAC disagreed with the commenters' rationale that the use of medical records data could determine the effect of both documentation and coding, and stated the following: “Gold-standard coders, however, only see the diagnoses written in the record and therefore are not able to distinguish changes in documentation from real changes in patients' diagnoses. This method of recoding existing documentation only works in situations where hospitals have no incentive to change documentation. That is clearly not the case with the transition to MS-DRGs.”

Response: We disagree that the new analysis presented by the national hospital associations has addressed our concerns with the use of a trend analysis to determine the documentation and coding increase when a more direct measurement of the relevant increase can be obtained using our proposed methodology. In last year's rule, we expressed several concerns with regard to the use of a trend analysis, stating, “We believe that the determination of an appropriatehistorical trend is less straightforward than our methodology, which, as described above, simply removes real case-mix growth from the calculation” (75 FR 50066). While we pointed out certain analytical flaws in the trend analysis used last year (for a full discussion, we refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50065 through 50066)), we did not state the correction of those flaws would yield a better documentation and coding estimate than the direct estimate obtained under our proposed methodology. In fact, we noted that “changes in case-mix do not necessarily follow a consistent pattern over time.” MedPAC provided analysis in its comment letter which supported CMS' position. MedPAC's analysis demonstrated that CMI growth was modest at best, never exceeding plus or minus 1 percent the decade prior to the introduction of MS-DRGs, and in some years was negative.

Image #ER18AU11.000

The national hospital associations' most significant response to our critique of their previous analysis in the FY 2011 IPPS/LTCH PPS final rule was to expand the time period upon which its trend analysis is based to include years where there were sustained negative changes in actual CMI. This raised their estimate of documentation and coding from 2.3 percent to 3.6 percent. We believe that this increase demonstrates the variability in the estimates that can be obtained using trend analyses. We also stated in last year's final rule that “despite our position that our methodology more directly measures the relevant increase, we did examine the alternative approach favored by commenters for calculating the documentation and classification increase. As a general statement, the approach of examining historical trends to estimate what case-mix would have been in the absence of the adoption of the MS-DRGs should not necessarily yield significantly different results from the analysis done by our actuaries and the MedPAC, if an appropriate historical trend can be determined.”

We reiterate our concerns with the use of historical trends to determine documentation and coding this year, and we do not believe that the modifications to the commenters' analysis address all of these concerns. In particular, we agree with MedPAC that “absent changes in documentation and coding and the shift away from inpatient surgeries, real changes in the CMI in 2008 through 2010 would be completely consistent with historical CMI changes since 2001.” In performing its analysis, MedPAC adjusted for changes in the share of cases with surgery, share of cases with CCs, and the estimated effects of changes in documentation and coding. MedPAC summarized the results of its analysis in the following graph.

Image #ER18AU11.001

In summary, with respect to trend analysis, we continue to believe that the determination of an appropriate historical trend is less straightforward than our proposed methodology, which simply removes real case-mix growth from the calculation. In addition, the estimates obtained using our proposed methodology are consistent with the historical case-mix growth, as demonstrated by MedPAC.

We also disagree with commenters who stated that the methodology employed by MedPAC and our actuaries can only provide upper and lower bounds of the combined effect of documentation and coding and real case-mix change and cannot separate documentation and coding effects from real case-mix change. While MedPAC recognized that the potential for a range of estimates may exist, MedPAC disagreed with the conclusion that index number theory, as described above, should be used to determine this range. MedPAC stated that “in this instance at least, the estimated range between the lower and upper bounds based on this approach is so wide that the estimates are useless for policy making.” We agree with MedPAC that the wide range resulting from an index number theory approach renders such an approach useless in this context.

In response to commenters' support for using hospital records to distinguish documentation and coding effect from real case-mix changes, we agree with MedPAC's rationale that such an analysis would fail to capture changes in documentation. MedPAC stated: “In our view, this approach does not work. The reason is that hospitals had an incentive to persuade attending physicians to be more specific in describing patients' acute manifestations of chronic conditions in their medical records. Some hospitals hired documentation specialists with the goal of changing physicians' medical record documentation, not simply to do a better job of coding what they wrote in the record (Hahey 2008). Gold-standard coders, however, only see the diagnoses written in the record and therefore are not able to distinguish changes in documentation from real changes in patients' diagnoses. This method of recoding existing documentation only works in situations where hospitals have no incentive to change documentation. That is clearly not the case with the transition to MS-DRGs. Thus, a very important part of the effect of changes in documentation and coding cannot be detected by the proposed method.”

We also note that as one part of our initial documentation and coding analysis, we attempted to examine coding changes based on hospital chart data from the Medicare Clinical Data Abstraction Center (CDAC). However, as we described in the FY 2010 IPPS/LTCH PPS final rule, it was not possible to perform this analysis due to aberrant CDAC data. We stated, “While we attempted to use the CDAC data to distinguish real increase in case-mix growth from documentation and coding in the overall case-mix number, we found aberrant data and significant variation across the FY 1999-FY 2007 analysis period. It was not possible to distinguish changes in documentation and coding from changes in real case-mix in the CDAC data. Therefore, we concluded that the CDAC data would not support analysis of real case-mix growth that could be used in our retrospective evaluation of the FY 2008 claims data.” (74 FR 43769)

Finally, we disagree with the commenters' suggestion that the assumptions in the capital update framework should be applied in our actuaries' estimate of documentation and coding, because the capital update framework is intended for projection purposes and would be inappropriate to use as a proxy for historical trends.

After careful consideration of all of the public comments we received, including alternatives suggested by commenters, we remain confident in the accuracy of our methodology and its appropriateness in determining the required adjustment amounts.

Comment: Numerous commenters expressed concern regarding the potentially severe negative fiscal impact that would be experienced by providers if the proposed documentation and coding improvement adjustment were tobe implemented. As noted above, MedPAC recommended that CMS reduce its proposed −3.15 percent adjustment to be consistent with a net update factor of +1.0 percent, as it recommended in its March 2011 Report to Congress.

As noted previously, we also received Congressional correspondence from numerous members of Congress that requested CMS to reconsider what would be an appropriate adjustment to hospital payments and also requested that CMS reexamine its methodology. This correspondence noted that hospitals would experience payment reductions if the proposed rule were finalized without modification and further stated that hospitals needed “adequate Medicare reimbursement to ensure that patients and communities receive the care they need.”

Response: We recognize the concerns regarding possible financial disruption that may be caused by the proposed documentation and coding improvement payment adjustment. We note, however, that these payment adjustments are necessary to correct past overpayments due solely to documentation and coding improvements. We have already delayed implementation of the required prospective adjustment amount, and we proposed only a portion of the remaining required adjustment to allow hospitals time to adjust to future payment differences and to moderate the effect of this adjustment in any given year. We are required under section 7(b)(1)(B) of the TMA to complete the remaining one-time −2.9 percent recoupment adjustment for FY 2008 and FY 2009 overpayments in FY 2012, and we believe the impact of completing this adjustment to be reasonable considering it will be completely offset by removing the FY 2011 recoupment adjustment by placing a +2.9 percent adjustment back to the standardized amount. In FY 2013, a positive +2.9 percent adjustment will be made, completing the recoupment process.

In the proposed rule, we stated it was imperative that CMS make a significant prospective adjustment amount in FY 2012 to prevent the accumulation of unrecoverable overpayments. As stated in previous responses to comments, we remain confident in the accuracy of the overall methodology and its appropriateness in determining the required adjustment amount. However, after consideration of the public comments, and in keeping with our longstanding policy to mitigate, when possible, the effects of significant downward adjustments on hospitals, we are finalizing a prospective adjustment of −2.0 percent, which is a reduction from our proposed adjustment of −3.15 percent. We note that this adjustment will result in a total update of +1.0 percent, in accordance with MedPAC's recommendation in its March 2011 Report to Congress for hospitals that report quality data consistent with the requirements of the Hospital IQR Program. Specifically, as discussed elsewhere in this final rule, the applicable percentage increase for FY 2012 is +1.9 percent (based on a market basket of +3.0 percent, a multifactor productivity adjustment of −1.0 percentage point, and a statutory adjustment of −0.1 percentage point in accordance with section 3401 of the Affordable Care Act). When combined with the +1.1 adjustment in light of Cape Cod v. Sebelius, 630 F.3d 203 (D.C. Cir. 2011) discussed elsewhere in this final rule, the applicable percentage increase of +1.9 percent and this proposed prospective adjustment of −2.0 percent results in a net total update of +1.0 percent, prior to additional adjustments for budget neutrality and other policy adjustments. We believe that this level of adjustment will help to minimize year to year volatility in payment rates due to the required documentation and coding adjustment. As we stated in the proposed rule, our analysis found that a prospective adjustment of −3.9 percent continues to be necessary. Because we are making a −2.0 percent prospective adjustment for FY 2012, a remaining prospective of adjustment of −1.9 percent will be necessary. While we are not at this time stating when we will make the remaining required −1.9 percent prospective adjustment, we consider it feasible to make all or most of the adjustment in FY 2013, when a +2.9 percent adjustment will be factored into rates to offset the one-time FY 2012 recoupment adjustment.

The table below summarizes the adjustments for FY 2012 for documentation and coding for IPPS hospitals.

FY 2012 MS-DRG Documentation and Coding Adjustment
Requiredprospectiveadjustment for FYs 2008-2009Remainingrequired recoupment adjustment for FYs 2008-2009Total remaining adjustmentProspective adjustment for FY 2012Recoupment adjustment to FY 2012paymentsRemaining prospective adjustment
Level of Adjustments−3.9%−2.9%−6.8%−2.0%−2.9%−1.9%
7. Background on the Application of the Documentation and Coding Adjustment to the Hospital-Specific Rates

Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on whichever of the following rates yields the greatest aggregate payment: The Federal rate; the updated hospital-specific rate based on FY 1982 costs per discharge; the updated hospital-specific rate based on FY 1987 costs per discharge; the updated hospital-specific rate based on FY 1996 costs per discharge; or the updated hospital-specific rate based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal national rate or, if higher, the Federal national rate plus 75 percent of the difference between the Federal national rate and the updated hospital-specific rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs per discharge. In the FY 2008 IPPS final rule with comment period (72 FR 47152 through 47188), we established a policy of applying the documentation and coding adjustment to the hospital-specific rates. In that final rule with comment period, we indicated that because SCHs and MDHs use the same DRG system as all other hospitals, we believe they should be equally subject to the budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. In establishing this policy, we relied on section 1886(d)(3)(A)(vi) of the Act, which provides us with the authority to adjust “the standardized amount” to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix.

However, in the final rule that appeared in theFederal Registeron November 27, 2007 (72 FR 66886), werescinded the application of the documentation and coding adjustment to the hospital-specific rates retroactive to October 1, 2007. In that final rule, we indicated that, while we still believe it would be appropriate to apply the documentation and coding adjustment to the hospital-specific rates, upon further review, we decided that the application of the documentation and coding adjustment to the hospital-specific rates is not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of the Act, which only mentions adjusting “the standardized amount” under section 1886(d) of the Act and does not mention adjusting the hospital-specific rates.

In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that we continued to have concerns about this issue. Because hospitals paid based on the hospital-specific rate use the same MS-DRG system as other hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. In section 1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid based on the standardized amount should not receive additional payments based on the effect of documentation and coding changes that do not reflect real changes in case-mix. Similarly, we believe that hospitals paid based on the hospital-specific rates should not have the potential to realize increased payments due to documentation and coding changes that do not reflect real increases in patient severity of illness. While we continue to believe that section 1886(d)(3)(A)(vi) of the Act does not provide explicit authority for application of the documentation and coding adjustment to the hospital-specific rates, we believe that we have the authority to apply the documentation and coding adjustment to the hospital-specific rates using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. The special exceptions and adjustment provision authorizes us to provide “for such other exceptions and adjustments to [IPPS] payment amounts * * * as the Secretary deems appropriate.” In the FY 2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, for the FY 2010 rulemaking, we planned to examine our FY 2008 claims data for hospitals paid based on the hospital-specific rate. We further indicated that if we found evidence of significant increases in case-mix for patients treated in these hospitals that do not reflect real changes in case-mix, we would consider proposing application of the documentation and coding adjustments to the FY 2010 hospital-specific rates under our authority in section 1886(d)(5)(I)(i) of the Act.

In response to public comments received on the FY 2009 IPPS proposed rule, we stated in the FY 2009 IPPS final rule that we would consider whether such a proposal was warranted for FY 2010. To gather information to evaluate these considerations, we indicated that we planned to perform analyses on FY 2008 claims data to examine whether there has been a significant increase in case-mix for hospitals paid based on the hospital-specific rate. If we found that application of the documentation and coding adjustment to the hospital-specific rates for FY 2010 was warranted, we indicated that we would propose to make such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.

8. Documentation and Coding Adjustment to the Hospital-Specific Rates for FY 2011 and Subsequent Fiscal Years

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule (74 FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we discussed our retrospective evaluation of the FY 2008 claims data for SCHs and MDHs using the same methodology described earlier for other IPPS hospitals. We found that, independently for both SCHs and MDHs, the change due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 slightly exceeded the proposed 2.5 percent result discussed earlier for other IPPS hospitals, but did not significantly differ from that result. We refer readers to those rules for a more complete discussion.

Therefore, consistent with our statements in prior IPPS rules, we proposed to use our authority under section 1886(d)(5)(I)(i) of the Act to prospectively adjust the hospital-specific rates by the proposed −2.5 percent in FY 2010 to account for our estimated documentation and coding effect in FY 2008 that does not reflect real changes in case-mix. We proposed to leave this adjustment in place for subsequent fiscal years in order to ensure that changes in documentation and coding resulting from the adoption of the MS-DRGs do not lead to an increase in aggregate payments for SCHs and MDHs not reflective of an increase in real case-mix. The proposed −2.5 percent adjustment to the hospital-specific rates exceeded the −1.9 percent adjustment to the national standardized amount under section 7(b)(1)(A) of Public Law 110-90 because, unlike the national standardized rates, the FY 2008 hospital-specific rates were not previously reduced in order to account for anticipated changes in documentation and coding that do not reflect real changes in case-mix resulting from the adoption of the MS-DRGs.

In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), we solicited public comment on this proposal. Consistent with our approach for IPPS hospitals discussed earlier, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed adoption of a documentation and coding adjustment to the hospital-specific rate until FY 2011. We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule for a more detailed discussion of our proposal, responses to comments, and finalized policy.

As we have noted previously, because SCHs and MDHs use the same MS-DRG system as all other IPPS hospitals, we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, we believe they should be equally subject to a prospective budget neutrality adjustment that we are applying for adoption of the MS-DRGs to all other hospitals. We believe the documentation and coding estimates for all subsection (d) hospitals should be the same. While the findings for the documentation and coding effect for all IPPS hospitals are similar to the effect for SCHs and slightly different to the effect for MDHs, we continue to believe that this is the appropriate policy so as to neither advantage or disadvantage different types of providers. As we discuss in section II.D.4. of this preamble, our best estimate, based on the most recently available data, is that a cumulative adjustment of −5.4 percent is required to eliminate the full effect of the documentation and coding changes on future payments to SCHs and MDHs. Unlike the case of standardized amounts paid to IPPS hospitals, prior to FY 2011, we had not made any previous adjustments to the hospital-specific rates paid to SCHs and MDHs to account for documentation and coding changes. Therefore, the entire −5.4 percent recoupment adjustment needed to be made, as opposed to a −3.9 percent remaining adjustment for IPPS hospitals.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50068 through 50071), we made an adjustment to the standardizedamount for IPPS hospitals of −2.9 percent under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. As we noted in the FY 2011 IPPS/LTCH PPS final rule, in determining the level and pace of adjustments to account for such documentation and coding changes, we believe that it is important to maintain, as much as possible, both consistency and equity among these classes of hospitals. Therefore, we finalized a prospective adjustment of −2.9 percent to the hospital-specific rates paid to SCHs and MDHs. We refer readers to the FY 2011 IPPS/LTCH PPS final rule for a more detailed discussion of our proposal, responses to comments, and finalized policy.

As discussed earlier in this section II.D., in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed a net −3.15 percent documentation and coding adjustment for IPPS hospitals in FY 2012 (−3.15 percent prospective adjustment plus a −2.9 percent recoupment adjustment in FY 2012, offset by the removal of the −2.9 percent recoupment adjustment for FY 2010). The proposed IPPS adjustment exceeded the remaining −2.5 percent documentation and coding adjustment for hospitals receiving a hospital-specific rate (that is, the entire −5.4 percent adjustment, minus the −2.9 percent adjustment finalized for FY 2011). As we indicated in the FY 2011 IPPS/LTCH PPS proposed rule and final rule, we are continuing, as much as possible, consistent with section 7(b)(1) of Public Law 110-90 and section 1886(d)(5)(I)(i) of the Act, to take such consistency and equity into account in developing future proposals for implementing documentation and coding adjustments. We believe that any adjustment to the hospital-specific rate due to documentation and coding effect should be as similar as possible to adjustments to the IPPS rate. Accordingly, we proposed a −2.5 percent payment adjustment to the hospital-specific rate. We believe that proposing the entire remaining prospective adjustment of −2.5 percent would allow CMS to maintain, to the extent possible, similarity and consistency in payment rates for different IPPS hospitals paid using the MS-DRG. As discussed below, we took a similar approach in finalizing an adjustment to the Puerto-Rico specific rate in FY 2011.

Comment: Numerous commenters requested that CMS rescind its proposed documentation and coding adjustment for SCHs and MDHs and questioned CMS' statutory authority to apply this adjustment to providers receiving a hospital-specific rate. The commenters argued that because section 1886(d)(3)(A)(vi) of the Act only authorizes application of a documentation and coding adjustment to the standardized amount, Congress' specific instruction as to the applicability of this type of adjustment makes it impermissible for CMS to apply the adjustment to the hospital-specific rates. Furthermore, commenters contend that, due to their critical role in isolated communities, any negative documentation and coding adjustment to SCHs and MDHs would endanger their ability to provide the type of care that Congress specifically sought to protect by establishing their special Medicare payment systems.

Response: We continue to disagree with the commenters that the Secretary's broad authority to make exceptions and adjustment to payment amounts under section 1886(d)(3)(A)(vi) of the Act cannot be applied in this instance. We have discussed the basis for applying such an adjustment in prior rules (in the FY 2009 proposed rule (73 FR 23540), the FY 2009 IPPS final rule (73 FR 48448), and the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24098)) and do not agree that the language in section 1886(d)(3)(A)(vi) of the Act limits our authority under section 1886(d)(5)(I)(i) of the Act to make such an adjustment. We recognize that SCHs and MDHs are entitled, through legislation, to receive the hospital-specific rate in order to compensate for their unique service requirements in the provider community. Similar to our approach with IPPS hospitals, we are implementing a phase-in of the documentation and coding adjustment over an appropriate period, beginning in FY 2011. We will continue to separately analyze SCH and MDH claims data to ensure than any future adjustment is appropriate for these provider types.

Comment: MedPAC responded to our request for comments regarding the level of adjustment for special categories of hospitals, such as hospitals paid under the hospital-specific payment rate, by pointing out hospitals have the same financial incentives for documentation and coding improvements and the same ability to benefit from the resulting change in case-mix, and by recommending that “all IPPS hospitals should be treated the same.” At the same time, MedPAC also stated that “delaying prevention of overpayments * * * creates a problem because overpayments will continue to accumulate in 2010 and later years until the effect of documentation and coding improvement is fully offset in the payment rates.” In setting forward its multi-year recommendation to CMS for complying with the requirements of section 7 of Public Law 110-90, MedPAC emphasized “minimizing the accumulation of overpayments.”

Response: We appreciate MedPAC's comments and agree that it is appropriate to conclude that hospitals paid under the hospital-specific rate have experienced a 5.4-percent increase documentation and coding in FYs 2008 and 2009, insofar as these hospitals had the same financial incentives to improve documentation and coding in those years as other IPPS hospitals. We further agree with MedPAC that it is appropriate to focus on minimizing the accumulation of overpayments, and we interpret this to mean that MedPAC recommends that CMS move forward as quickly as possible with prospective adjustments at an appropriate level. We appreciate MedPAC's guidance that “all hospitals be treated the same,” and stress the importance of consistent treatment of various classes of similarly situated hospitals in our payment policy determinations.

We continue to believe that any adjustment to the hospital-specific rate due to documentation and coding effect should be as similar as possible to adjustments to the standardized amount. Accordingly, because we are finalizing a prospective adjustment to the standardized amount of −2.0 percent for FY 2012, we are also finalizing a prospective adjustment to the hospital-specific rate of −2.0 percent for FY 2012, instead of our proposed adjustment of −2.5 percent. Making this level of adjustment allows CMS to maintain, for FY 2012, consistency in payment rates for different IPPS hospitals paid using the MS-DRG. Because this −2.0 percent adjustment no longer reflects the entire remaining requirement adjustment amount of −2.5 percent, an additional −0.5 percent adjustment to the hospital-specific payment rates will be required in future rulemaking.

9. Application of the Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount
a. Background

Puerto Rico hospitals are paid based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. As noted previously, the documentation and coding adjustment we adopted in the FY 2008 IPPS final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the Secretary the authority toadjust “the standardized amounts computed under this paragraph” to eliminate the effect of changes in coding or classification that do not reflect real changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to the national standardized amounts computed under section 1886(d)(3) of the Act, but does not apply to the Puerto Rico-specific standardized amount computed under section 1886(d)(9)(C) of the Act. In calculating the FY 2008 payment rates, we made an inadvertent error and applied the FY 2008 −0.6 percent documentation and coding adjustment to the Puerto Rico-specific standardized amount, relying on our authority under section 1886(d)(3)(A)(vi) of the Act. However, section 1886(d)(3)(A)(vi) of the Act authorizes application of a documentation and coding adjustment to the national standardized amount and does not apply to the Puerto Rico specific standardized amount. In the FY 2009 IPPS final rule (73 FR 48449), we corrected this inadvertent error by removing the −0.6 percent documentation and coding adjustment from the FY 2008 Puerto Rico-specific rates (that is, we made a positive 0.6 percent adjustment, increasing the Puerto Rico-specific rates).

While section 1886(d)(3)(A)(vi) of the Act is not applicable to the Puerto Rico-specific standardized amount, we believe that we have the authority to apply the documentation and coding adjustment to the Puerto Rico-specific standardized amount using our special exceptions and adjustment authority under section 1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid based on the hospital-specific rate, we believe that Puerto Rico hospitals that are paid based on the Puerto Rico-specific standardized amount should not have the potential to realize increased payments due to documentation and coding changes that do not reflect real increases in patient severity of illness. Consistent with the approach described for SCHs and MDHs, in the FY 2009 IPPS final rule (73 FR 48449), we indicated that we planned to examine our FY 2008 claims data for hospitals in Puerto Rico. We indicated in the FY 2009 IPPS proposed rule (73 FR 23541) that if we found evidence of significant increases in case-mix for patients treated in these hospitals, we would consider proposing to apply documentation and coding adjustments to the FY 2010 Puerto Rico-specific standardized amount under our authority in section 1886(d)(5)(I)(i) of the Act.

b. Documentation and Coding Adjustment to the Puerto Rico-Specific Standardized Amount

For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a retrospective evaluation of the FY 2008 claims data for Puerto Rico hospitals using the same methodology described earlier for IPPS hospitals paid under the national standardized amounts under section 1886(d) of the Act. We found that, for Puerto Rico hospitals, the increase in payments for discharges occurring during FY 2008 due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2008 was approximately 1.1 percent. However, as we noted earlier for IPPS hospitals and hospitals receiving hospital-specific rates, if the estimated documentation and coding effect determined based on a full analysis of FY 2009 claims data was more or less than our then current estimates, it would change, possibly lessen, the anticipated cumulative adjustments that we had estimated we would have to make for the FY 2008 and FY 2009 combined adjustment. Therefore, we believed that it would be more prudent to delay implementation of the documentation and coding adjustment to allow for a more complete analysis of FY 2009 claims data for Puerto Rico hospitals.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we indicated that, given these documentation and coding increases, consistent with our statements in prior IPPS rules, we would use our authority under section 1886(d)(5)(I)(i) of the Act to adjust the Puerto Rico-specific rate and solicited public comment on the proposed −1.1 percent prospective adjustment. However, in parallel to our decision to postpone adjustments to the Federal standardized amount, we also indicated that we were adopting a similar policy for the Puerto Rico-specific rate for FY 2010 and would consider the phase-in of this adjustment over an appropriate time period through future rulemaking. We noted that, as with the hospital-specific rates, the Puerto Rico-specific standardized amount had not previously been adjusted based on estimated changes in documentation and coding associated with the adoption of the MS-DRGs.

Consistent with our approach for IPPS hospitals for FY 2010, we indicated that we would address in the FY 2011 rulemaking cycle any change in FY 2009 case-mix due to documentation and coding that did not reflect real changes in case-mix for discharges occurring during FY 2009.

As we have noted above, similar to SCHs and MDHs, hospitals in Puerto Rico use the same MS-DRG system as all other hospitals and we believe they have the potential to realize increased payments from documentation and coding changes that do not reflect real increases in patient severity of illness. Therefore, we believe they should be equally subject to the prospective budget neutrality adjustment that we intend to apply to prospective payment rates for IPPS hospitals, including SCHs and MDHs, in order to eliminate the full effect of the documentation and coding changes associated with implementation of the MS-DRG system.

As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 through 50073), using the same methodology we applied to estimate documentation and coding changes under IPPS for non-Puerto Rico hospitals, our best estimate, based on the then most recently available data (FY 2009 claims paid through March 2010), was that, for documentation and coding that occurred over FY 2008 and FY 2009, a cumulative adjustment of −2.6 percent was required to eliminate the full effect of the documentation and coding changes on future payments from the Puerto Rico-specific rate. As we stated above, we believe it important to maintain both consistency and equity among all hospitals paid on the basis of the same MS-DRG system. At the same time, however, we recognize that the estimated cumulative impact on aggregate payment rates resulting from implementation of the MS-DRG system was smaller for Puerto Rico hospitals as compared to IPPS hospitals and SCHs and MDHs. Therefore, in the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23876), we proposed an adjustment to eliminate the full effect of the documentation and coding changes on the portion of future payments to Puerto Rico hospitals based on the Puerto Rico-specific rate. We stated that we believed that a full prospective adjustment was the most appropriate means to take into full account the effect of documentation and coding changes on payments, while maintaining equity as much as possible between hospitals paid on the basis of different prospective rates. We noted that our updated data analysis in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50072 through 50073) showed that this adjustment would be −2.6 percent. The previous estimate in the proposed rule was a −2.4 percent adjustment.

One reason we proposed the full prospective adjustment for the Puerto Rico-specific rate in FY 2011 was tomaintain equity as much as possible in the documentation and coding adjustments applied to various hospital rates in FY 2011. Because our proposal was to make an adjustment that represents the full adjustment that is warranted for the Puerto Rico-specific rate, we indicated that we did not anticipate proposing any additional adjustments to this rate for documentation and coding effects.

Therefore, because the Puerto Rico-specific rate received a full prospective adjustment of −2.6 percent in FY 2011, we proposed no further adjustment in the proposed rule for FY 2012.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background

In the FY 2009 IPPS final rule (73 FR 48450), we continued to implement significant revisions to Medicare's inpatient hospital rates by completing our 3-year transition from charge-based relative weights to cost-based relative weights. Beginning in FY 2007, we implemented relative weights based on cost report data instead of based on charge information. We had initially proposed to develop cost-based relative weights using the hospital-specific relative value cost center (HSRVcc) methodology as recommended by MedPAC. However, after considering concerns expressed in the public comments we received on the proposal, we modified MedPAC's methodology to exclude the hospital-specific relative weight feature. Instead, we developed national CCRs based on distinct hospital departments and engaged a contractor to evaluate the HSRVcc methodology for future consideration. To mitigate payment instability due to the adoption of cost-based relative weights, we decided to transition cost-based weights over 3 years by blending them with charge-based weights beginning in FY 2007. (We refer readers to the FY 2007 IPPS final rule for details on the HSRVcc methodology and the 3-year transition blend from charge-based relative weights to cost-based relative weights (71 FR 47882 through 47898).)

In FY 2008, we adopted severity-based MS-DRGs, which increased the number of DRGs from 538 to 745. Many commenters raised concerns as to how the transition from charge-based weights to cost-based weights would continue with the introduction of new MS-DRGs. We decided to implement a 2-year transition for the MS-DRGs to coincide with the remainder of the transition to cost-based relative weights. In FY 2008, 50 percent of the relative weight for each DRG was based on the CMS DRG relative weight and 50 percent was based on the MS-DRG relative weight.

In FY 2009, the third and final year of the transition from charge-based weights to cost-based weights, we calculated the MS-DRG relative weights based on 100 percent of hospital costs. We refer readers to the FY 2007 IPPS final rule (71 FR 47882) for a more detailed discussion of our final policy for calculating the cost-based DRG relative weights and to the FY 2008 IPPS final rule with comment period (72 FR 47199) for information on how we blended relative weights based on the CMS DRGs and MS-DRGs.

2. Summary of the RTI Study of Charge Compression and CCR Refinement

As we transitioned to cost-based relative weights, some public commenters raised concerns about potential bias in the weights due to “charge compression,” which is the practice of applying a higher percentage charge markup over costs to lower cost items and services, and a lower percentage charge markup over costs to higher cost items and services. As a result, the cost-based weights would undervalue high-cost items and overvalue low-cost items if a single CCR is applied to items of widely varying costs in the same cost center. To address this concern, in August 2006, we awarded a contract to RTI to study the effects of charge compression in calculating the relative weights and to consider methods to reduce the variation in the CCRs across services within cost centers. RTI issued an interim draft report in January 2007 with its findings on charge compression (which was posted on the CMS Web site at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf). In that report, RTI found that a number of factors contribute to charge compression and affect the accuracy of the relative weights. RTI's findings demonstrated that charge compression exists in several CCRs, most notably in the Medical Supplies and Equipment CCR.

In its interim draft report, RTI offered a number of recommendations to mitigate the effects of charge compression, including estimating regression-based CCRs to disaggregate the Medical Supplies Charged to Patients, Drugs Charged to Patients, and Radiology cost centers, and adding new cost centers to the Medicare cost report, such as adding a “Devices, Implants and Prosthetics” line under “Medical Supplies Charged to Patients” and a “CT Scanning and MRI” subscripted line under “Radiology-Diagnostics”. Despite receiving public comments in support of the regression-based CCRs as a means to immediately resolve the problem of charge compression, particularly within the Medical Supplies and Equipment CCR, we did not adopt RTI's recommendation to create additional regression-based CCRs. (For more details on RTI's findings and recommendations, we refer readers to the FY 2009 IPPS final rule (73 FR 48452).) RTI subsequently expanded its analysis of charge compression beyond inpatient services to include a reassessment of the regression-based CCR models using both outpatient and inpatient charge data. This interim report was made available in April 2008 during the public comment period on the FY 2009 IPPS proposed rule and can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were separately displayed in the April 2008 interim report, as well as the more recent OPPS chapters, were included in the July 3, 2008 RTI final report entitled, “Refining Cost-to-Charge Ratios for Calculating APC [Ambulatory Payment Classification] and DRG Relative Payment Weights,” that became available at the time of the development of the FY 2009 IPPS final rule. The RTI final report can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.

RTI's final report found that, under the IPPS and the OPPS, accounting improvements to the cost reporting data reduce some of the sources of aggregation bias without having to use regression-based adjustments. In general, with respect to the regression-based adjustments, RTI confirmed the findings of its March 2007 report that regression models are a valid approach for diagnosing potential aggregation bias within selected services for the IPPS and found that regression models are equally valid for setting payments under the OPPS.

RTI also noted that cost-based weights are only one component of a final prospective payment rate. There are other rate adjustments (wage index, IME, and DSH) to payments derived from the revised cost-based weights, and the cumulative effect of these components may not improve the ability of final payment to reflect resource cost. RTI endorsed short-term regression-based adjustments, but also concluded that more refined and accurate accounting data are the preferred long-term solution to mitigate charge compression and related bias in hospital cost-based weights. For a more detailedsummary of RTI's findings, recommendations, and public comments we received on the report, we refer readers to the FY 2009 IPPS final rule (73 FR 48452 through 48453).

3. Summary of Policy Changes Made in FY 2011

In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48458 through 48467), in response to the RTI's recommendations concerning cost report refinements, and because of RAND's finding that regression-based adjustments to the CCRs do not significantly improve payment accuracy, we discussed our decision to pursue changes to the cost report to split the cost center for Medical Supplies Charged to Patients into one line for “Medical Supplies Charged to Patients” and another line for “Implantable Devices Charged to Patients.” (We refer readers to the Web site: http://www.rand.org/pubs/working_papers/WR560/, and the FY 2009 IPPS/LTCH PPS final rule for details on the RAND report (73 FR 48453 through 48457).) We acknowledged, as RTI had found, that charge compression occurs in several cost centers that exist on the Medicare cost report. However, as we stated in the FY 2009 IPPS/LTCH PPS final rule, we focused on the CCR for Medical Supplies and Equipment because RTI found that the largest impact on the MS-DRG relative weights could result from correcting charge compression for devices and implants. In determining what should be reported in these respective cost centers, we adopted the commenters' recommendation that hospitals should use revenue codes established by AHA's National Uniform Billing Committee to determine what should be reported in the “Medical Supplies Charged to Patients” and the “Implantable Devices Charged to Patients” cost centers. Accordingly, a new subscripted line 55.30 for “Implantable Devices Charged to Patients” was created in July 2009 as part of CMS' Transmittal 20 update to the existing cost report Form CMS-2552-96. This new subscripted cost center has been available for use for cost reporting periods beginning on or after May 1, 2009.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our proposal to create standard cost centers for CT scans, MRI, and cardiac catheterization, and to require that hospitals report the costs and charges for these services under new cost centers on the revised Medicare cost report Form CMS 2552-10. As we discussed in the FY 2009 IPPS/LTCH PPS and CY 2009 OPPS/ASC proposed and final rules, RTI found that the costs and charges of CT scans, MRI, and cardiac catheterization differ significantly from the costs and charges of other services included in the standard associated cost center. RTI also concluded that both the IPPS and OPPS relative weights would better estimate the costs of those services if CMS were to add standard costs centers for CT scans, MRI, and cardiac catheterization in order for hospitals to report separately the costs and charges for those services and in order for CMS to calculate unique CCRs to estimate the cost from charges on claims data. (We refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a more detailed discussion on the reasons for the creation of standard cost centers for CT scans, MRI, and cardiac catheterization.) The new standard cost centers for MRI, CT scans, and cardiac catheterization are effective for cost report periods beginning on or after May 1, 2010, on the revised cost report Form CMS-2552-10. CMS issued the new hospital cost report Form CMS-2552-10 on December 30, 2010. The new cost report form can be accessed at the CMS Web site at: https://www.cms.gov/Manuals/PBM/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=ascending&itemID=CMS021935&intNumPerPage=10. Once at this Web site, users should double click on “Chapter 40.”

4. Discussion for FY 2012

In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48468), we stated that, due to what is typically a 3-year lag between the reporting of cost report data and the availability for use in ratesetting, we anticipated that we might be able to use data from the new “Implantable Devices Charged to Patients” cost center to develop a CCR for Implantable Devices Charged to Patients in the FY 2012 or FY 2013 IPPS rulemaking cycle. Specifically, we stated, “Because there is approximately a 3-year lag between the availability of cost report data for IPPS and OPPS rate-setting purposes in a given fiscal year, we may be able to derive two distinct CCRs, one for medical supplies and one for devices, for use in calculating the FY 2012 or FY 2013 IPPS relative weights and the CY 2012 or CY 2013 OPPS relative weights” (73 FR 48468). However, as noted in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43782), due to delays in the issuance of the revised cost report CMS 2552-10, a new CCR for Implantable Devices Charged to Patients may not be available until FY 2013. Similarly, when we finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add new cost centers for MRI, CT scans, and cardiac catheterization, we explained that data from any new cost centers that may be created will not be available until at least 3 years after they are first used (75 FR 50077). That is, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50077), we stated that the data from the standard cost centers for MRI, CT scans, and cardiac catheterization respectively, would not even be available for possible use in calculating the relative weights earlier than 3 years after Form CMS-2552-10 becomes available. We further stated that, at that time, we would analyze the data and determine if it is appropriate to use those data to create distinct CCRs from these cost centers for use in the relative weights for the respective payment systems. We also reassured public commenters that there was no need for immediate concern regarding possible negative payment impacts on MRI and CT scans under the IPPS and the OPPS because the cost report data that would be used for the calculation of the relative weights were at least 3 years from being available. We stated that we will first thoroughly analyze and run impacts on the data and provide the public with the opportunity to comment before distinct CCRs for MRI and CT scans would be finalized for use in the calculation of the relative weights. We also urged all hospitals to properly report their costs and charges for MRI, CT scans, and all other services so that, in several years' time, we will have reliable data from all hospitals on which to base a decision as to whether to incorporate additional CCRs into the relative weight calculation (75 FR 50077).

Accordingly, in preparation for the FY 2012 IPPS/LTCH PPS proposed rule, we assessed the availability of data in the “Implantable Devices Charged to Patients” cost center. In order to develop a robust analysis regarding the use of cost data from the “Implantable Devices Charged to Patients” cost center, it was necessary to have a critical mass of cost reports filed with data in this cost center. The cost center for “Implantable Devices Charged to Patients” is effective for cost reporting periods beginning on or after May 1, 2009. While developing the FY 2012 IPPS/LTCH PPS proposed rule, we checked the availability of FY 2009 cost reports in the December 31, 2010 quarter ending update of HCRIS, which was the latest upload of FY 2009 cost report data that we could use for the proposed rule. We determined that there were only 437 hospitals (out of approximately 3,500 IPPS hospitals)that completed the “Implantable Devices Charged to Patients” cost center. We did not believe that this was a sufficient amount of data from which to generate a meaningful analysis in this particular situation. Therefore, we did not propose to use data from the “Implantable Devices Charged to Patients” cost center to create a distinct CCR for Implantable Devices Charged to Patients for use in calculating the MS-DRG relative weights for FY 2012. We indicated that we would reassess the availability of data for the “Implantable Devices Charged to Patients” cost center, and the “MRI, CT Scans, and Cardiac Catheterization” cost centers, for the FY 2013 IPPS rulemaking cycle and, if appropriate, we would propose to create a distinct CCR at that time.

Comment: Commenters requested that CMS reconsider its position to not use the data from the implantable device cost center to calculate the MS-DRG relative weights for FY 2012. The commenter noted that during the development of the proposed rule, CMS found that only 437 hospitals out of approximately 3,500 IPPS hospitals reported data in the “Implantable Devices Charged to Patients” cost center of the Medicare hospital cost report based on the December 2010 update of FY 2009 HCRIS. One commenter found, while reviewing the March 2011 update of FY 2009 HCRIS, that there are approximately 800 hospitals that are reporting cost information in the implantable medical device cost center.

Another commenter stated that, based on the December 2010 update of FY 2009 HCRIS, 804 hospitals reported data on either line 55 (Medical Supplies Charged to Patients) or line 55.30 (Implantable Devices Charged to Patients), and in the March 2011 update of FY 2009 HCRIS, approximately 1,600 hospitals were reporting data on either of those lines. As such, the commenters believed there is now a sufficient amount of data to use the implantable device CCR to calculate the relative weights and improve accuracy of the payment rates. Commenters also noted that if we do not use the implantable device cost center to calculate the FY 2012 relative weights, there will be enough data to develop an implantable device CCR for FY 2013.

One commenter suggested that CMS adopt regression-based CCRs to calculate the FY 2012 MS-DRG relative weights because CMS does not yet have sufficient cost report data to develop the implantable device CCR. This would allow CMS to address charge compression immediately and improve payment accuracy for medical devices and implantables.

Response: In the FY 2012 IPPS/LTCH PPS proposed rule, we indicated that we did not have sufficient cost report data to develop the kind of robust analysis that we assured the public we would provide prior to implementing a new CCR for implantable medical devices. Therefore, we stated that we will reassess the availability of data for FY 2013. We have reviewed the availability of FY 2009 cost reports in the March 31, 2011 quarter ending update of HCRIS, which is the latest upload of FY 2009 cost report data that we currently have available. We have determined that, for cost reporting periods beginning on or after May 1, 2009, the effective date of line 55.30 (Implantable Devices Charged to Patients), there are 961 hospitals (out of approximately 3,500 IPPS hospitals) that have completed the “Implantable Devices Charged to Patients” cost center. This represents an increase of 524 compared to the 437 entries that we found when developing the FY 2012 proposed rule. Regardless of the number of hospitals currently reporting data in the “Implantable Devices Charged to Patients” cost center, the data that were available at the time we were developing our proposed policies for FY 2012 were insufficient, and we believe it would be inappropriate to finalize a specific CCR for implantable devices charged to patients for FY 2012 without an opportunity for the public to review and comment on our analysis. Rather, we believe that it is appropriate to wait until FY 2013, when we hope to be able to provide a proper impact analysis of the addition of a CCR for implantable devices charged to patients in the relative weights calculation. Accordingly, we are not implementing a regression-based CCR for implantable devices at this time. Therefore, we are not implementing any new CCRs for use in the relative weights calculation for FY 2012.

Comment: Commenters urged CMS to increase education efforts to encourage faster hospital adoption of the use of the implantable medical device cost center. Commenters noted that, at the time of the development of the FY 2012 IPPS/LTCH PPS proposed rule, only 437 hospitals had completed the implantable device cost center, and this demonstrated that CMS needs to undertake additional outreach to hospitals to ensure that they appropriately complete the Medicare hospital cost report.

Response: We agree that it is important that hospitals understand how to accurately report data in the “Implantable Devices Charged to Patients” cost center, and we have worked to add more clarity to the cost report instructions. However, we do believe that the December 31, 2010 update of HCRIS reflected relatively few entries for this cost center because the corresponding cost center line was only available for use for cost reporting periods beginning on or after May 1, 2009. This effective date was somewhat awkward in terms of timing and would not have applied to a large number of hospitals whose data would not be evident to CMS until the March 31, 2011 update to HCRIS.

Comment: Commenters suggested that CMS monitor the accuracy of the data reported in the implantable device cost center on the Medicare hospital cost report. Commenters urged CMS to impress the importance upon the Medicare Administrative Contractors (MACs) of establishing a mechanism to audit the implantable device cost center to ensure that the costs and charges are appropriately reported. One commenter suggested that CMS require MACs to require hospitals to explain why they had not reported in the implantable device cost center. In addition, the commenters suggested that CMS reissue instructions, similar to Transmittal 321, dated February 28, 2009, to the MACs with recommendations that MACs develop an audit program for line 55 (Medical Supplies Charged to Patients) and line 55.30 (Implantable Devices Charged to Patients). Commenters noted that potential audit mechanisms include identifying the presence of revenue codes 274, 275, 276 and 624 reported on the PS&R used to settle the cost report, and comparing the CCR based on line 55.30 to the CCR based on line 55. In addition, one commenter suggested that the cost reporting software be modified to create a level 1 error in the case where no data is reported on line 55.30 (Implantable Devices Charged to Patients) to compel hospitals to report that information.

Response: We agree with the commenters that the cost reporting lines, whether they are for Implantable Devices Charged to Patients, MRI, CT scans, cardiac catheterization, or any others, should be subject to greater audit scrutiny from the Medicare contractors. The new Medicare cost report form CMS-2552-10, on line 121 of Worksheet S-2, Part I, asks “Did this facility incur and report costs for implantable devices charged to a patient? Enter in column 1 “Y” for yes or “N” for no.” All hospital types, including non-IPPS hospitals, CAHs, and Maryland inpatient short-term acute hospitals, are required to properly report their costs and charges, and if the answer to this question is Y for any type of hospital, then line 72, column 26, ofWorksheet B, Part I must be greater than 0, with an accurate amount that reflects the hospital's costs for implantable devices charged to patients. In addition, we note that a Level 1 edit on the CMS-2552-10 form already exists that ensures that line 72, column 26, of Worksheet B, Part I (Implantable Devices Charged to Patients on Worksheet A of the CMS-2552-10 form) is greater than 0 if Worksheet S-2, Part I, line 121 is “Y”. The edit is also set up for the reverse scenario; that is, if there is an amount on Worksheet B, Part I, line 72, column 26, then the response on Worksheet S-2, Part I, line 121 must be “Y.”

Comment: Some commenters supported not making major refinements to the calculation of MS-DRG relative weights. Commenters valued the consistency, transparency, and predictability of the calculation of the MS-DRG relative weights.

Response: We appreciate the commenters' support for our proposal of not making major refinements to the MS-DRG relative weights in the absence of sufficient data from which to create new CCRs. We also value consistency, transparency, and predictability in the calculation of the MS-DRG relative weights.

Comment: One commenter supported our decision to create standard cost centers for CT, MRI, and cardiac catheterization for hospitals to report their costs and charges on the Medicare hospital cost report. In addition, the commenter supported urgently adopting the use of the CT, MRI, and cardiac catheterization cost centers in calculating the MS-DRG relative weights.

Response: We appreciate the commenter's support. As we stated in the proposed rule, we will reassess the availability of data for the “Implantable Devices Charged to Patients” cost center, and the “MRI, CT Scans, and Cardiac Catheterization” cost centers, for the FY 2013 IPPS rulemaking cycle, and, if appropriate, we will propose to create distinct CCRs for these cost centers at that time.

Comment: One commenter noted that allogeneic stem cell acquisition charges are reported using revenue code 0819 for “Other Organ Acquisition.” However, the commenter added, this revenue code is not part of the 15 national cost center CCRs used in the calculation of the MS-DRG relative weights. In addition, the commenter stated, the Medicare hospital cost report does not specifically identify a cost center for bone marrow acquisition costs. The commenter requested direction on capturing these acquisition costs and how those costs and charges are accounted for in the MS-DRG relative weight calculation.

Response: We appreciate this comment, but note that it is not within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS proposed rule regarding the calculation of the MS-DRG relative weights. However, we also note that allogeneic bone marrow transplant charges are included in the 15 CCRs, specifically as part of the Blood and Blood Products CCR and that CCR's associated cost centers on the cost report.

Comment: One commenter stated that CMS should specifically exclude sleeve gastrectomy charges derived from the Medicare claims data and sleeve gastrectomy costs from the Medicare hospital cost report data from the MS-DRG weight recalibrations. The commenter noted that CMS excludes Medicare claims for services that are non-covered for Medicare beneficiaries from the MS-DRG relative weight calculation and, therefore, sleeve gastrectomy charges should be excluded. In addition, the commenter recommended that CMS remind providers that Medicare cost reports should exclude charges and costs associated with the sleeve gastrectomy procedure, as it is a noncovered service.

Response: We appreciate this comment, but note that it is not within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS proposed rule regarding the calculation of the MS-DRG relative weights. We will take this issue into consideration for future rulemaking.

Comment: One commenter suggested that CMS evaluate the MedPAR claims database to ensure that it is not using Medicare managed care claims data to calculate the MS-DRG relative weights, as CMS has proposed to only use fee-for-service claims to calculate the MS-DRG relative weights.

Response: We appreciate this comment, but note that it is not within the scope of the issues discussed in the FY 2012 IPPS/LTCH PPS proposed rule regarding the calculation of the MS-DRG relative weights. However, we note that it is already our policy to exclude managed care claims from the MS-DRG relative weights calculation.

After consideration of the public comments received, we are not implementing any new CCRs for use in the relative weights calculation for FY 2012.

F. Preventable Hospital-Acquired Conditions (HACs), Including Infections

1. Background
a. Statutory Authority

Section 1886(d)(4)(D) of the Act addresses certain hospital-acquired conditions (HACs), including infections. Section 1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the Secretary was required to select, in consultation with the Centers for Disease Control and Prevention (CDC), at least two conditions that: (a) are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence-based guidelines. Section 1886(d)(4)(D) of the Act also specifies that the list of conditions may be revised, again in consultation with CDC, from time to time as long as the list contains at least two conditions.

Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, effective with discharges occurring on or after October 1, 2007, submit information on Medicare claims specifying whether diagnoses were present on admission (POA). Section 1886(d)(4)(D)(i) of the Act specifies that, effective for discharges occurring on or after October 1, 2008, Medicare no longer assigns an inpatient hospital discharge to a higher paying MS-DRG if a selected condition is not POA. Thus, if a selected condition that was not POA manifests during the hospital stay, it is considered a HAC and the case is paid as though the secondary diagnosis was not present. However, even if a HAC manifests during the hospital stay, if any nonselected CC/MCC appears on the claim, the claim will be paid at the higher MS-DRG rate. Under the HAC payment policy, all CCs/MCCs on the claim must be HACs in order to generate a lower MS-DRG payment. In addition, Medicare continues to assign a discharge to a higher paying MS-DRG if a selected condition is POA.

The POA indicator reporting requirement and the HAC payment provision apply to IPPS hospitals only. Non-IPPS hospitals, including CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, hospitals in Maryland operating under waivers, rural health clinics, federally qualified health centers, RNHCIs, and Department of Veterans Affairs/Department of Defense hospitals, are exempt from POA reporting and the HAC payment provision. Throughout this section, theterm “hospital” refers to an IPPS hospital.

The HAC provision found in section 1886(d)(4)(D) of the Act is part of an array of Medicare tools that we are using to promote increased quality and efficiency of care. Those tools include measuring performance, using payment incentives, publicly reporting performance results, applying national and local coverage policy decisions, enforcing conditions of participation, and providing direct support for providers through Quality Improvement Organization (QIO) activities. The application of these tools, such as this HAC provision, is transforming Medicare from a passive payer to an active purchaser of higher value health care services. We are applying these strategies for inpatient hospital care and across the continuum of care for Medicare beneficiaries.

This effort is highly compatible with the underlying purposes as well as existing structural features of Medicare's IPPS. Under the IPPS, hospitals are encouraged to treat patients efficiently because they receive the same DRG payment for stays that vary in length and in the services provided, which gives hospitals an incentive to avoid unnecessary costs in the delivery of care. In some cases, conditions acquired in the hospital do not generate higher payments than the hospital would otherwise receive for cases without these conditions. To this extent, the IPPS encourages hospitals to avoid complications.

However, the treatment of certain conditions can generate higher Medicare payments in two ways. First, if a hospital incurs exceptionally high costs treating a patient, the hospital stay may generate an outlier payment. Because the outlier payment methodology requires that hospitals experience large losses on outlier cases before outlier payments are made, hospitals have an incentive to prevent outliers. Second, under the MS-DRG system that took effect in FY 2008 and that has been refined through rulemaking in subsequent years, certain conditions can generate higher payments even if the outlier payment requirements are not met. Under the MS-DRG system, there are currently 259 sets of MS-DRGs that are split into 2 or 3 subgroups based on the presence or absence of a CC or an MCC. The presence of a CC or an MCC generally results in a higher payment. However, since we implemented the HAC provisions, if a secondary diagnosis acquired during a hospital stay is a HAC and no other CCs or MCCs are present, the hospital receives a payment under the MS-DRGs as if the HACs were not present. (We refer readers to section II.D. of the FY 2008 IPPS final rule with comment period for a discussion of DRG reforms (72 FR 47141).)

b. HAC Selection

Beginning in FY 2007, we have set forth proposals, and solicited and responded to public comments, to implement section 1886(d)(4)(D) of the Act through the IPPS annual rulemaking process. For specific policies addressed in each rulemaking cycle, we direct readers to the following publications: The FY 2007 IPPS proposed rule (71 FR 24100) and final rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed rule (72 FR 24716 through 24726) and final rule with comment period (72 FR 47200 through 47218); the FY 2009 IPPS proposed rule (73 FR 23547) and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule (74 FR 43782); and the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080). A complete list of the 10 current categories of HACs is included in section II.F.2. of this preamble.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080 through 50101), we did not add any categories of additional HACs or make any changes to policies already established under the authority of section 1886(d)(4)(D) of the Act.

c. Collaborative Process

In establishing the HAC payment policy under section 1886(d)(4)(D) of the Act, our experts have worked closely with public health and infectious disease professionals from across the Department of Health and Human Services, including CDC, the Agency for Healthcare Research and Quality (AHRQ), and the Office of Public Health and Science (OPHS), to identify the candidate preventable HACs, review comments, and select HACs. CMS and CDC also have collaborated on the process for hospitals to submit a POA indicator for each diagnosis listed on IPPS hospital Medicare claims and on the payment implications of the various POA reporting options. In addition, as discussed below, we have used rulemaking and Listening Sessions to obtain public input.

d. Application of HAC Payment Policy to MS-DRG Classifications

As described above, in certain cases, application of the HAC payment policy provisions can result in MS-DRG reassignment to a lower paying MS-DRG. The following diagram portrays the logic of the HAC payment policy provision as adopted in the FY 2008 IPPS final rule with comment period (72 FR 47200) and in the FY 2009 IPPS final rule (73 FR 48471):

Image #ER18AU11.002

e. Public Input Regarding Selected and Potential Candidate HACs

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50080 through 50101), we did not add or remove categories of HACs, nor did we make any changes to previously established policies. However, we continue to encourage public dialogue about refinement of the HAC list.

Given the timeliness of the HAC discussion, particularly when considered within the context of recent legislative health care reform initiatives, we remain eager to engage in an ongoing public dialogue about the various aspects of this policy. We plan to continue to include updates and findings from the Research Triangle Institute, International (RTI) evaluation on CMS' Hospital-Acquired Conditions and Present on Admission Indicator Web site available at: http://www.cms.hhs.gov/HospitalAcqCond/.

f. POA Indicator Reporting

Collection of POA indicator data is necessary to identify which conditions were acquired during hospitalization for the HAC payment provision as well as for broader public health uses of Medicare data. In the FY 2011 IPPS/LTCH PPS proposed rule (75 FR 23381) (and as noted in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50081)), we listed the instructions and change requests that were issued to IPPS hospitals and also to non-IPPS hospitals regarding the submission of POA indicator data for all diagnosis codes on Medicare claims and the processing of non-PPS claims We also indicated that specific instructions on how to select the correct POA indicator for each diagnosis code were included in the ICD-9-CM Official Guidelines for Coding and Reporting, available on the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide10.pdf. We reiterate that additional information regarding POA indicator reporting and application of the POA reporting options is available on the CMS Web site at: http://www.cms.gov/HospitalAcqCond/.

In preparation for the transition to the ICD-10-CM/PCS code set effective October 1, 2013, further information regarding the use of the POA indictor with the ICD-10-CM/PCS classification as it pertains to the HAC policy will be discussed in future rulemaking. In the meantime, we encourage readers to review the educational materials and draft code sets currently available for ICD-10-CM/PCS at the CMS Web site at: http://www.cms.gov/ICD10/. In addition, the draft ICD-10-CM/PCS coding guidelines can be viewed at the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/10cmguidelines2011.

Historically, we have not provided coding advice. Rather, we collaborate with the American Hospital Association (AHA) through the Coding Clinic for ICD-9-CM. We will continue to collaborate with the AHA to promote the Coding Clinic for ICD-9-CM as the source for coding advice about the POA indicator.

As discussed in previous IPPS proposed and final rules, there are five POA indicator reporting options, as defined by the ICD-9-CM Official Guidelines for Coding and Reporting:

IndicatorDescriptor
YIndicates that the condition was present on admission.
WAffirms that the hospital has determined that, based on data and clinical judgment, it is not possible to document when the onset of the condition occurred.
NIndicates that the condition was not present on admission.
UIndicates that the documentation is insufficient to determine if the condition was present at the time of admission.
1Signifies exemption from POA reporting. CMS established this code as a workaround to blank reporting on the electronic 4010A1. A list of exempt ICD-9-CM diagnosis codes is available in the ICD-9-CM Official Guidelines for Coding and Reporting.

In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we adopted final payment policies to: (1) pay the CC/MCC MS-DRGs for those HACs coded with “Y” and “W” indicators; and (2) not pay the CC/MCC MS-DRGs for thoseHACs coded with “N” and “U” indicators.

Beginning on or after January 1, 2011, hospitals are required to begin reporting POA indicators using the 5010 electronic transmittal standards format. The 5010 format removes the need to report a POA indicator of “1” for codes that are exempt from POA reporting. However, for claims that continue to be submitted using the 4010 electronic transmittal standards format, the POA indicator of “1” is still necessary because of reporting restrictions from the use of the 4010 electronic transmittal standards format.

Hospitals that began reporting with the 5010 format on and after January 1, 2011, can no longer report a POA indicator of “1” for POA exempt codes. The POA field should instead be left blank for codes exempt from POA reporting. We have issued CMS instructions on this reporting change as a One-Time Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 7024, effective on August 13, 2010. These instructions, entitled “5010 Implementation-Changes to Present on Admission (POA) Indicator `1' and the K3 Segment,” can be located at the following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf.

We are continuing our efforts to clarify instructions regarding use of the POA indicator. As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50088), we received public comments in response to the FY 2011 IPPS/LTCH PPS proposed rule that expressed concern about the accuracy of reporting of POA indicators for HACs related to intracranial injury with loss of consciousness. The codes for loss of consciousness are listed in the Falls and Trauma HAC category, within the “Intracranial Injury” subcategory. Because loss of consciousness is a component of intracranial injuries rather than a separate condition, we agreed that the POA guidelines that instructed coders to assign an “N” indicator if any part of the combination code was not present on admission did not apply to the loss of consciousness codes. As a member of the Editorial Advisory Board for the Coding Clinic for ICD-9-CM, we worked with the American Hospital Association (AHA), American Health Information Management Association (AHIMA), and CDC to provide additional clarification on how these conditions should be reported. Additional guidance on how these cases should be reported can be found in AHA's Coding Clinic for ICD-9-CM, 2nd Quarter 2010, “Frequently Asked POA Questions” section. That publication clarified the POA reporting for patients in whom a single code captures the fact that the patient was admitted as a result of a head injury and then subsequently lost consciousness after the admission. For these cases, we clarified that the POA indicator assigned should be “Y,” indicating that the head injury and resulting loss of consciousness occurred prior to (and was present on) admission.

We expect that this clarification will lead to greater consistency and accuracy in POA indicator reporting for these conditions. We look forward to continuing our efforts as part of the AHA's Editorial Advisory Board for Coding Clinic for ICD-9-CM to provide guidance on accuracy of coding and the reporting of POA indicators. Hospitals look to this publication to provide detailed guidance on ICD-9-CM coding and POA reporting. We encourage hospitals to send any other questions about ICD-9-CM codes or POA indicator selection to the AHA so that the Editorial Advisory Board can continue its role of providing instruction on the accurate selection and reporting of both ICD-9-CM codes and POA indicators.

2. Additions and Revisions to the HAC Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 and 25814), we discussed our analysis for a proposed new condition as a possible candidate for selection for FY 2012 under section 1886(d)(4)(D) of the Act. As described in more detail in section II.F.1.a. of this preamble, each HAC must be: (1) High cost, high volume, or both; (2) assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (3) could reasonably have been prevented through the application of evidence-based guidelines. We also discussed other considerations relating to the selection of a HAC, including any administrative or operational issues associated with a proposed condition. For example, the condition may only be able to be identified by multiple codes, thereby requiring the development of special GROUPER logic to also exclude similar or related ICD-9-CM codes from being classified as a CC or an MCC. Similarly, a condition acquired during a hospital stay may arise from another condition that the patient had prior to admission, making it difficult to determine whether the condition was reasonably preventable. We invited public comment on clinical, coding, and prevention issues on our proposal to add contrast-induced acute kidney injury as a condition subject to the HAC payment provision for FY 2012 (for discharges occurring on or after October 1, 2011).

Contrast-induced acute kidney injury is a significant complication of the use of iodinated contrast media and accounts for a large number of cases of hospital-acquired acute kidney injury cases. A published study has shown that renal failure associated with contrast administration is correlated with up to 11 percent of cases of renal failure that occur in hospitals (Nash, K., Hafeez, A., et al:“Hospital-Acquired Renal Insufficiency,”American Journal on Kidney Disease, 2002, Vol. 39, No. 5, pp. 930-936). Patients who experience acute kidney injury have an increased risk of inhospital mortality even after adjustments for disease comorbidities (McCullough, J.: “Contrast-Induced Acute Kidney Injury,”Journal of the American College of Cardiology, 2008, Vol. 51, No. 15, pp. 1419-1428). Data suggest that the risk for mortality extends beyond the period of hospitalization, resulting in 1-year and 5-year mortality rates significantly higher than those patients who have not developed acute kidney injury. In addition, contrast-induced acute kidney injury is associated with an increased incidence of myocardial infarction, bleeding requiring transfusion, and prolonged hospital stays (McCullough, J.: American Journal of Medicine, 1997, Vol. 103, pp. 368-375). We note that “acute kidney injury” is a new terminology endorsed by the National Kidney Foundation to replace “acute renal failure.”

There is not a unique code that identifies kidney injury. However, kidney injury can be identified as a subset of discharges with ICD-9-CM diagnosis code 584.9 (Acute kidney failure, unspecified). As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule, our clinical advisors believe that diagnosis code 584.9, in combination with the associated procedure codes listed below, can accurately identify contrast-induced acute kidney injury:

  • 88.40 (Arteriography using contrast material, unspecified site)
  • 88.41 (Arteriography of cerebral arteries)
  • 88.42 (Aortography)
  • 88.43 (Arteriography of pulmonary arteries)
  • 88.44 (Arteriography of other intrathoracic vessels)
  • 88.45 (Arteriography of renal arteries)
  • 88.46 (Arteriography of placenta)
  • 88.47 (Arteriography of other intra-abdominal arteries)
  • 88.48 (Arteriography of femoral and other lower extremity arteries)
  • 88.49 (Arteriography of other specified sites)
  • 88.50 (Angiocardiography, not otherwise specified)
  • 88.51 (Angiocardiography of venae cavae)
  • 88.52 (Angiocardiography of right heart structures)
  • 88.53 (Angiocardiography of left heart structures)
  • 88.54 (Combined right and left heart angiocardiography)
  • 88.55 (Coronary arteriography using a single catheter)
  • 88.56 (Coronary arteriography using two catheters)
  • 88.57 (Other and unspecified coronary arteriography)
  • 88.58 (Negative-contrast cardiac roentgenography)
  • 88.59 (Intra-operative coronary fluorescence vascular angiography)
  • 88.60 (Phlebography using contrast material, unspecified site)
  • 88.61 (Phlebography of veins of head and neck using contrast material)
  • 88.62 (Phlebography of pulmonary veins using contrast materal)
  • 88.63 (Phlebography of other intrathoracic veins using contrast material)
  • 88.64 (Phlebography of the portal venous system using contrast material)
  • 88.65 (Phlebography of other intra-abdominal veins using contrast material)
  • 88.66 (Phlebography of femoral and other lower extremity veins using contrast material)
  • 88.67 (Phlebography of other specified sites using contrast material)
  • 87.71 (C.A.T. of kidney)
  • 87.72 (Other nephrotomogram)
  • 87.73 (Intravenous pyelogram)
  • 87.74 (Retrograde pyelogram)
  • 87.75 (Percutaneous pyelogram)

We proposed to identify contrast-induced acute kidney injury with diagnosis code 584.9 in combination with one or more of the above associated procedure codes.

We also considered identifying contrast-induced acute kidney injury through the use of external injury codes, or E-codes. Code E947.8 (Other drugs and medicinal substances) has an inclusion term “Contrast media used for diagnostic x-ray procedures” to identify the use of contrast. However, as we noted in the proposed rule, we do not currently require the reporting of E-codes for the HAC payment provisions under the IPPS. Therefore, we were unable to rely on the identification of contrast-induced acute kidney injury through E-codes on Medicare IPPS HACs claims.

Section 1886(d)(4)(D) of the Act requires that a HAC be a condition that is “high cost, high volume, or both.” In FY 2009, there were 38,324 inpatient discharges coded with acute renal failure as specified by ICD-9-CM diagnosis code 584.9 reported as not present on admission (POA status = N) when reported with one of the above procedure codes submitted through Medicare claims. The cases had an average charge of $29,122 for the entire hospital stay. Studies suggest the additional average cost per day for a patient who has acquired contrast-induced acute kidney injury is $2,654. Other data report patients stays increases by 3.75 days once they have acquired the diagnosis (Subramanian, S.: “Economic Burden of Contrast-Induced Nephropathy: Implications for Prevention Strategies,”Journal of Medical Economics, 2007, Vol. 10, pp. 119-134).

There are widely recognized guidelines for the prevention of acute kidney injury that address the prevention of contrast-induced acute kidney injury, and we believe the condition is reasonably preventable. One of these guidelines can be found at: http://www.renal.org/Clinical/GuidelinesSection/AcuteKidneyInjury.aspx.

The condition of contrast-induced acute kidney injury as specified in our proposal is a CC under the MS-DRGs.

We indicated in the proposed rule that we had not identified any additional administrative or operational difficulties with proposing this condition as a HAC. We invited public comment on whether contrast-induced acute kidney injury meets the requirements set forth under section 1886(d)(4)(D) of the Act, as well as other coding and prevention issues associated with our proposal to add this injury as a condition subject to the HAC payment provision for FY 2012 (for discharges occurring on or after October 1, 2011). We also indicated that we were particularly interested in receiving comments on the degree to which contrast-induced acute kidney injury is reasonably preventable through the application of evidence-based guidelines.

Comment: One commenter supported CMS' proposal to add contrast-induced acute kidney injury as a HAC under section 1886(d)(4)(D) of the Act. The commenter applauded the inclusion of contrast-induced acute kidney injury to the HAC policy for FY 2012, and encouraged CMS to continue to expand and refine the HACs and categories.

Response: We appreciate the commenter's support.

Comment: Many commenters discussed their concerns regarding the specificity and sensitivity of the ICD-9-CM codes proposed to identify the proposed new contrast-induced acute kidney injury HAC. The commenters believed that these codes would not solely capture contrast-induced acute kidney injury and would capture other conditions as well. The commenters expressed concern about the specificity of the current ICD-9-CM code 584.9 in reliably identifying cases of acute kidney injury that occurred due to a specific diagnosis instead of acute kidney injury that is believed to occur secondary to being correlated with exposure to contrast. The commenter stated that, for example, a patient admitted to a hospital could experience drug-induced kidney injury that has resolved; later during that hospital stay, the patient has a subsequent angiographic procedure. Under our proposed methodology, the commenter added, this patient would be erroneously identified as having contrast-induced acute kidney injury.

Some commenters suggested that CMS use E-codes, which identify injuries, while others did not support the use of E-codes because they are not consistently coded for Medicare billing purposes. Commenters further noted that the list of ICD-9-CM procedure codes proposed to assist in identifying the use of contrast as the reason for the acute kidney injury occurring are often not reported on hospital claims. The commenters explained that most of the codes do not represent procedures affecting payment, are not required, and, therefore, are not reported.

Other commenters recommended waiting to finalize this proposed candidate condition until the ICD-10 code set is implemented. The commenters suggested that a unique code to identify and describe contrast-induced acute kidney injury could be proposed in ICD-10, and this would eliminate the coding limitations that currently exist for this condition in ICD-9-CM.

Response: We acknowledge the commenters' concerns regarding the current ICD-9-CM coding issues surrounding contrast-induced acute kidney injury, and that our proposal could inadvertently include claims for beneficiaries who experience acute kidney injury that may not be contrast-induced. We note that, as discussed in the FY 2008 IPPS final rule with comment period (72 FR 47216), under 42 CFR 412.60(d), a hospital has 60 days after the date of the notice of the initialassignment of a discharge to a DRG to request a review of that assignment. The hospital may submit additional information as a part of its request. A hospital that believes a discharge was assigned to the incorrect DRG as a result of application of the payment adjustment for HACs may request review of the DRG assignment by its fiscal intermediary or MAC. However, we also recognize that it is important to be as precise as possible in specifying which codes to use to identify a HAC, and that a lack of precision could increase hospitals' administrative burden in pursuing these appeals.

In addition, we recognize that E-codes do capture injuries and could offer more precision in identifying contrast-induced acute kidney injury than our proposal. We also agree with the commenters who pointed out that E-codes are currently not required for Medicare billing purposes and, therefore, are inconsistently reported on claims. We note further that because these codes are not required for Medicare IPPS payment purposes, MS-DRG assignments do not currently take E-codes into account.

We also appreciate the comments that pointed out that the procedure codes identified in our proposal are often not reported. We note that commenters asserted that these codes were not reported because they did not affect payment. We are concerned that the potential for reduced payment would create a further disincentive to include these procedure codes on Medicare claims. As we stated earlier, we recognize that it is important to be as precise as possible in the interest of payment accuracy in specifying which codes to use to identify a HAC.

We also agree that ICD-10 will offer a greater degree of specificity. Currently, no code exists within ICD-10 that would exclusively capture contrast-induced acute kidney injury. We note that, as discussed in the FY 2012 IPPS/LTCH proposed rule (76 FR 25843), and in section II.G.13.b. of this final rule, a partial code freeze was discussed at multiple meetings of the ICD-9-CM Coordination and Maintenance Committee, and public comment was actively solicited. At the September 15-16, 2010 meeting, an announcement was made that the ICD-9-CM Coordination and Maintenance Committee will implement a partial freeze of the ICD-9-CM and ICD-10 (ICD-10-CM and ICD-10-PCS) codes prior to the implementation of ICD-10 on October 1, 2013. There was considerable support for this partial freeze. The partial freeze will be implemented as follows:

  • The last regular, annual updates to both ICD-9-CM and ICD-10 code sets will be made on October 1, 2011.
  • On October 1, 2012, there will be only limited code updates to both the ICD-9-CM and ICD-10 code sets to capture new technologies and diseases as required by section 503(a) of Public Law 108-173.
  • On October 1, 2013, there will be only limited code updates to ICD-10 code sets to capture new technologies and diagnoses as required by section 503(a) of Public Law 108-173. There will be no updates to ICD-9-CM, as it will no longer be used for reporting.
  • On October 1, 2014, regular updates to ICD-10 will begin.

The ICD-9-CM Coordination and Maintenance Committee will continue to meet twice a year during the partial freeze. At these meetings, the public will be asked to comment on whether or not requests for new diagnosis or procedure codes should be created based on the criteria of the need to capture a new technology or disease. Any code requests that do not meet the criteria will be evaluated for implementation within ICD-10 on and after October 1, 2014, once the partial freeze has ended.

In summary, we agree with the commenters' recommendations regarding coding and are deferring decision making regarding the inclusion of contrast-induced acute kidney injury as a HAC until such a time when improved coding is available.

Comment: Several commenters submitted comments pertaining to the sufficiency or strength of the evidence-based guidelines in terms of providing information or direction that would lead to the prevention of contrast-induced acute kidney injury 100 percent of the time. The commenters stated that evidence-based guidelines are based on varying levels of evidence, from expert consensus based on opinion (the “weakest” level) to expert consensus based on data produced in randomized controlled trials (the “strongest” level). According to the commenters, in many cases, the guidelines do not address all patient populations. Commenters also stated that current evidence-based guidelines for decreasing the incidence of contrast-induced acute kidney injury are limited. The commenters also noted that new guidelines addressing the topic of contrast-induced acute kidney injury are being published in late summer of 2011 by an international organization, Kidney Disease Improving Global Outcomes (KDIGO), after a multiyear development process. They noted that CMS should take these guidelines into consideration when they become available.

Response: We acknowledge that different types of evidence-based guidelines exist. However, we believe that the inclusion of contrast-induced acute kidney injury in the current evidence-based guidelines for Acute Kidney Injury supports the inclusion of contrast-induced acute kidney injury as a condition on the HAC list. We agree that any new evidence-based guidelines for contrast-induced acute kidney injury should be considered when they become available.

Comment: A few commenters expressed concern about the proposal potentially creating an incentive for practitioners to avoid necessary contrast use in patients with high risk of acute kidney disease.

Response: We acknowledge and are sensitive to the theoretical possibility of patient access to care being restricted. We are unaware of significant data supporting this assertion, but we will continue to monitor the situation for potential unintended consequences with regard to this concern.

Comment: Some commenters recommended that CMS not reduce payment for this condition, but to instead develop a quality measure that would track it. The commenters noted that such a measure could track whether the appropriate evidence-based steps to prevent contrast-induced acute kidney injury have been performed and documented.

Response: We appreciate the commenters' recommendation. We note that we did not propose to develop a quality measure for contrast-induced acute kidney injury in the proposed rule. Thus, we consider this comment to be outside of the scope of the provisions discussed in the proposed rule. However, this subject area represents an area of continued interest and opportunity for the agency, and we will take this recommendation into consideration during the development of future rulemaking.

In conclusion, after consideration of the public comments we received, we are deferring the decision making on the addition of contrast-induced acute kidney injury as a HAC until future rulemaking, and such a time when improved coding is available for the reasons described above. We note that the reduction of contrast-induced acute kidney injury represents an area of continued interest for the agency, and we believe that substantial opportunity exists for hospitals to improve quality in this area.

b. Additional New Diagnosis Codes for Existing HACs

As we discussed in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25814), as changes to diagnosis codes and new diagnosis codes are proposed and finalized for the list of CCs and MCCs, we modify the list of selected HACs to reflect these changes. We included in Table 6A of the proposed rule (which was made available via the Internet) the five new ICD-9-CM diagnosis codes that we proposed to add to three of the current HAC categories. We proposed to add two new codes for the Falls and Trauma HAC category, two new codes for the Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category, and one new code for the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category. The two new diagnosis codes that we proposed to add to the Falls and Trauma HAC category were code 808.44 (Multiple closed pelvic fractures without disruption of pelvic circle) and code 808.54 (Multiple open pelvic fractures without disruption of pelvic circle). These codes fall within the range of the fracture code subcategory (800 through 829). The two new diagnosis codes that we proposed to add to the Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category were code 539.01 (Infection due to gastric band procedure) and code 539.81 (Infection due to other bariatric procedure). We stated our belief that these diagnosis codes are appropriate for inclusion in the existing category when reported as a secondary diagnosis with the specified principal diagnosis code of morbid obesity (code 278.01) and one of the designated bariatric procedure codes (code 44.38, 44.39, or 44.95). Lastly, the one new diagnosis code that we proposed to add to the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category was code 415.13 (Saddle embolus of pulmonary artery). Diagnosis code 415.13 would be applicable when reported along with one of the following procedures codes describing certain orthopedic procedures: 00.85 through 00.87, 81.51, 81.52, or 81.54. Shown in the table below are these five new diagnosis codes with their corresponding descriptions and their proposed CC/MCC designations.

ICD-9-CM codeCode descriptorProposed CC/MCC designation
539.01Infection due to gastric band procedureCC
539.81Infection due to other bariatric procedureCC
415.13Saddle embolus of pulmonary arteryMCC
808.44Multiple closed pelvic fractures without disruption of pelvic circleCC
808.54Multiple open pelvic fractures without disruption of pelvic circleMCC

We invited public comments on the proposed adoption of these five new ICD-9-CM diagnosis codes as CC/MCCs that are listed above, which, if finalized, would be added to the current Falls and Trauma HAC category, Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category and Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category and would be subject to the HAC payment provision for FY 2012.

Comment: Several commenters supported CMS' proposal to adopt the five new ICD-9-CM diagnosis codes with their proposed CC/MCC designations for addition to the current Falls and Trauma HAC category, Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category, and Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category and to subject them to the HAC payment provision for FY 2012.

Response: We appreciate the commenters' support.

Comment: One commenter expressed concern regarding the appropriateness of adding ICD-9-CM diagnosis code 415.13 as a condition that, when reported along with the designated procedure codes describing certain orthopedic procedures (00.85 through 00.87, 81.51, 81.52, or 81.54) in the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category, be subject to the HAC payment provision. The commenter stated that HAC selection should be based on conditions considered to be reasonably preventable with adherence to evidence-based practice guidelines. The commenter further believed that a saddle embolus of the pulmonary artery, when reported with the cited orthopedic procedure codes, is not a condition that is “reasonably preventable” and that patients undergoing total knee replacement and total hip replacement in the Medicare population are at the highest risk for developing a DVT/PE.

The commenter also stated that the current structure of the MS-DRG system does not specifically risk-adjust for these conditions in the MS-DRGs related to primary total hip replacement (code 81.51) or primary total knee replacement (code 81.54). The commenter believed that risk adjustment is an indispensible component of an equitable HAC policy. The commenter suggested that CMS account for the patient-specific risk factors that affect preventability and reported that many hospitalized patients have comorbidities and other patient characteristics that put them at an increased risk of complications. The commenter suggested that CMS take these factors into account in creating a policy that is reasonable and equitable, in order to minimize incentives for limiting access for patients who are at higher risk for complications.

This same commenter also expressed support of CMS' efforts to encourage the adoption of evidence-based treatment guidelines that could improve the quality of care for patients. However, while the commenter noted that evidence-based guidelines can reduce events, the commenter asserted that CMS selected one of the patient populations at highest risk for DVT/PE, diverging from the concept of “reasonably preventable.”

Response: We appreciate the commenter's detailed comments on the proposal to add diagnosis code 415.13 as a condition that, when reported along with the designated procedure codes described above, is subject to the HAC payment provision. In the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), we discussed the evidence based guidelines regarding DVT/PE and agreed with commenters that this is reasonably preventable. In the FY 2009 IPPS final rule (73 FR 48481), we addressed commenters' concerns regarding the preventability of DVT/PE and noted that the statute does not require that a condition be “always preventable”' in order to qualify as anHAC, but rather that it be “reasonably preventable,” which necessarily implies something less than 100 percent.

With regard to the commenter's assertion that risk adjustment is an indispensible component of an equitable HAC policy, we refer readers to the FY 2009 IPPS final rule and the FY 2010 IPPS/RY 2010 LTCH PPS final rule. In the FY 2009 IPPS final rule (73 FR 48487 through 48488), we discussed risk adjustment of payments related to HACs. We addressed this issue again in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43785), where we noted that a risk adjustment methodology may lead to greater precision of HAC payment determinations. As part of the RTI evaluation of the HAC-POA program, the concept of risk adjustment continues to be an important area of interest and study for the agency. We will consider the results of RTI's evaluation when it is complete and, if appropriate, make a proposal and solicit public comment in future rulemaking.

After consideration of the public comments we received, we are finalizing the adoption of the five new ICD-9-CM diagnosis codes described above as CC/MCCs to be added to their respective HAC categories as proposed. Therefore, effective October 1, 2011 (FY 2012), procedure codes 808.44 and 808.54 describing multiple pelvic fractures will be added to the Falls and Trauma HAC category, procedure codes 539.01 and 539.81 describing infections related to gastric procedures will be added to the Surgical Site Infection (SSI) Following Certain Bariatric Procedures HAC category, and procedure code 415.13 describing a type of pulmonary embolus will be added to the Deep Vein Thrombosis and Pulmonary Embolism (DVT/PE) Following Certain Orthopedic Procedures HAC category. All of these conditions will be subject to the HAC payment provision for FY 2012.

c. Revision to HAC Subcategory Title

After publication of the FY 2011 IPPS/LTCH PPS final rule, we received a comment stating that the subcategory title “Electric Shock” that is included in the Falls and Trauma HAC category was misleading. The commenter stated that this subcategory title did not accurately describe the CC/MCC ICD-9-CM diagnoses codes (991 through 994) contained within this subcategory. The commenter requested that CMS develop a new title that would more accurately describe this group of codes.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25814), we stated that we agreed with the commenter that the HAC subcategory title “Electric Shock” is potentially misleading because the codes included within these ranges contain a variety of injuries, including the following:

  • Category 991 (Effects of Reduced Temperature)
  • Category 992 (Effects of Heat and Light)
  • Category 993 (Effects of Air Pressure)
  • Category 994 (Effects of Other External Causes)

We proposed to change the title of this HAC subcategory from “Electric Shock” to “Other Injuries” because it includes a variety of injury codes. The subcategory will continue to include the codes within the 991 through 994 code ranges appearing on the CC/MCC list. We did not propose any changes to the list of codes in this subcategory; we simply proposed to rename the subcategory title. We invited public comments on the proposed title change to the HAC subcategory from “Electric Shock” to “Other Injuries” for FY 2012.

Comment: Several commenters supported CMS' proposal to change the title of this HAC subcategory from “Electric Shock” to “Other Injuries” because it includes a variety of injury codes. The commenters stated that this title change would better describe the conditions included in the range of codes.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to change the title of the HAC subcategory from “Electric Shock” to “Other Injuries.” The subcategory will continue to include the codes within the 991 through 994 code ranges appearing on the CC/MCC list. In addition, we are not making any changes to the list of codes in this subcategory; the subcategory title will simply be renamed effective FY 2012.

d. Conclusion

In the FY 2012 IPPS/LTCH PPS proposed rule, we listed the current HAC categories and the ICD-9-CM codes that identify the conditions and have been finalized through FY 2011. For FY 2012, we proposed that these conditions continue to be subject to the HAC payment provision, along with the creation of a new HAC category for contrast-induced acute kidney injury. (We note that, as discussed in section II.F.2.a. of the preamble of the proposed rule and this final rule, we are not adopting our proposal to add a new HAC category for contrast-induced acute kidney injury for FY 2012.) In addition, we proposed to add five new ICD-9-CM diagnosis codes and to revise the title of the “Electric Shock” subcategory in the Falls and Trauma HAC category.

Comment: Several commenters supported maintaining the current HAC categories and the ICD-9-CM codes that identify those conditions. These commenters agreed that the conditions should continue to be subject to the HAC payment provision for FY 2012.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are adopting the following list of HAC categories and the ICD-9-CM codes that identify the conditions that have been finalized through FY 2011 and that we are finalizing in this final rule for FY 2012.

HACCC/MCC(ICD-9-CM Code)
Foreign Object Retained After Surgery998.4 (CC)
998.7 (CC)
Air Embolism999.1 (MCC)
Blood Incompatibility999.60 (CC)
999.61 (CC)
999.62 (CC)
999.63 (CC)
999.69 (CC)
Pressure Ulcer Stages III & IV707.23 (MCC)
707.24 (MCC)
Falls and Trauma:Codes within these ranges on the CC/MCC list:
—Fracture800-829
—Dislocation830-839
—Intracranial Injury850-854
—Crushing Injury925-929
—Burn940-949
—Other Injuries991-994
Catheter-Associated Urinary Tract Infection (UTI)996.64 (CC)Also excludes the following from acting as a CC/MCC:
112.2 (CC)
590.10 (CC)
590.11 (MCC)
590.2 (MCC)
590.3 (CC)
590.80 (CC)
590.81 (CC)
595.0 (CC)
597.0 (CC)
599.0 (CC)
Vascular Catheter-Associated Infection999.31 (CC)
Manifestations of Poor Glycemic Control250.10-250.13 (MCC)250.20-250.23 (MCC)
251.0 (CC)
249.10-249.11 (MCC)
249.20-249.21 (MCC)
Surgical Site Infections 
Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass Graft (CABG)519.2 (MCC)And one of the following procedure codes:
36.10-36.19
Surgical Site Infection Following Certain Orthopedic Procedures996.67 (CC)998.59 (CC)
And one of the following procedure codes: 81.01-81.08, 81.23-81.24, 81.31-81.38, 81.83, 81.85
Surgical Site Infection Following Bariatric Surgery for Obesity Principal Diagnosis—278.01539.01 (CC)
539.81 (CC)
998.59 (CC)
And one of the following procedure codes: 44.38, 44.39, or 44.95
Deep Vein Thrombosis and Pulmonary Embolism Following Certain Orthopedic Procedures415.11 (MCC)415.13 (MCC)415.19 (MCC)
453.40-453.42 (CC)
And one of the following procedure codes: 00.85-00.87, 81.51-81.52, or 81.54

We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed analyses supporting the selection of each of the HACs selected through FY 2012.

3. RTI Program Evaluation Summary
a. Background

On September 30, 2009, a contract was awarded to Research Triangle Institute, International (RTI) to evaluate the impact of the Hospital-Acquired Condition-Present on Admission (HAC-POA) provisions on the changes in the incidence of selected conditions, effects on Medicare payments, impacts on coding accuracy, unintended consequences, and infection and event rates. This is an intra-agency project with funding and technical support coming from CMS, OPHS, AHRQ, and CDC. The evaluation will also examine the implementation of the program and evaluate additional conditions for future selection.

RTI's evaluation of the HAC-POA provisions is divided into several parts. In the FY 2011 IPPS/LTCH PPS final rule (50085 through 50101), we summarized the analyses by RTI that had been completed at that time. These RTI analyses of POA indicator reporting, frequencies and net savings associated with current HACs, and frequencies of previously considered candidate HACs reflected MedPAR claims from October 2008 through September 2009.

b. FY 2009 Data Analysis

As we describe in section II.F.1.f. of this preamble, we have provided instructions to IPPS hospitals and non-IPPS hospitals regarding the submission of POA indicator data for all diagnosis codes on Medicare claims and the processing of non-PPS claims (75 FR 23381) and note that specific instructions on how to select the correct POA indicator for each diagnosis code were included in the ICD-9-CM Official Guidelines for Coding and Reporting, available on the CDC Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide10.pdf. After publication of the FY 2011 IPPS/LTCH PPS final rule, we identified a discrepancy between the claims data that hospitals submitted and the CMS data file used to calculate the HAC measures. Specifically, this error led to incorrect HAC assignments in cases where a hospital reported an external cause of injury (E-code). Since then, we have corrected this error in the data file.

As a result, the RTI analysis of the HAC-POA program that was conducted using FY 2009 claims data was updated using the corrected data file. The corrected data do not appear to have amaterial impact on our previous findings for FY 2009. Revised data tables were made publicly available on the CMS Web site at http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web site at http://www.rti.org/reports/cms/ after publication of the FY 2012 IPPS/LTCH PPS proposed rule.

c. FY 2010 Data Analysis

RTI's analysis of the FY 2010 MedPAR data file for the HAC-POA program evaluation was prepared for publication in the FY 2012 IPPS/LTCH PPS proposed rule. We indicated in the proposed rule that we would provide the results from the study on the CMS Web site at http://www.cms.gov/HospitalAcqCond/01_Overview.asp and on the RTI Web site at http://www.rti.org/reports/cms/ when it became available. We also stated that we anticipated that the examination of FY 2010 MedPAR data would be completed soon after publication of the proposed rule. We invited public comment on RTI's analysis of the FY 2010 MedPAR data for the HAC-POA program.

Since publication of the FY 2012 IPPS/LTCH proposed rule, we determined that it would be beneficial to the public if we provided a summary of the results of RTI's HAC-POA program evaluation of the FY 2010 MedPAR data in this FY 2012 IPPS/LTCH final rule, in addition to making these results available on both the CMS and RTI Web sites mentioned above. Below we present a summary of these results.

d. FY 2010 RTI Analysis on POA Indicator Reporting of Current HACs.

To better understand the impact of HACs on the Medicare program, it is necessary to first examine the incidence of POA indicator reporting across all eligible Medicare discharges. As mentioned previously, only IPPS hospitals are required to submit POA indicator data for all diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals were excluded, as well as providers in waiver States (Maryland) and territories other than Puerto Rico.

Using MedPAR claims data from October 2009 through September 2010, RTI found a total of approximately 74.38 million secondary diagnoses across approximately 10.2 million discharges. As shown in Chart A below, the majority of all secondary diagnoses (80.94 percent) were reported with a POA indicator of “Y,” meaning the condition was POA.

Chart A—POA Code Distribution Across All Secondary Diagnoses
NumberPercentage
Total Discharges in Final File10,189,168 
Total Number of Secondary Diagnoses Across Total Discharges74,382,681100.00
POAIndicator Description:  
Y Condition present on admission60,206,59380.94
W Status cannot be clinically determined13,1450.02
N Condition not present on admission5,001,1386.72
U Documentation not adequate to determine if condition was present on admission2,223,3182.99
1 Exempted ICD-9-CM code6,938,4879.33

Following the initial analysis of POA indicator reporting for all secondary diagnoses, RTI then evaluated POA indicator reporting for specific HAC-associated secondary diagnoses. The term “HAC-associated secondary diagnosis” refers to those diagnoses that are on the selected HAC list and were reported as a secondary diagnosis. Chart B below shows a summary of the HAC categories with the frequency in which each HAC was reported as a secondary diagnosis and the corresponding POA indicators assigned on the claims. It is important to note that, because more than one HAC-associated diagnosis code can be reported per discharge (that is, on a single claim), the frequency of HAC-associated diagnosis codes may be more than the actual number of discharges that have a HAC-associated diagnosis code reported as a secondary diagnosis. Below we discuss the frequency of each HAC-associated diagnosis code and the POA indicators assigned to those claims.

RTI analyzed the frequency of each reported HAC-associated secondary diagnosis (across all approximately 10.2 million discharges) and the POA indicator assigned to the claim. Chart B below shows that the most frequently reported conditions were in the Falls and Trauma HAC category, with a total of 189,231 HAC-associated diagnosis codes being reported for that HAC category. Of these 189,231 diagnoses, 5,762 reported a POA indicator of “N” and 326 reported a POA indicator of “U” for not POA. Similarly, 183,048 diagnoses reported a POA indicator of “Y” for POA and 95 diagnoses reported a POA indicator of “W.” The lowest frequency appears in the Surgical Site Infection (SSI) Following Bariatric Surgery for Obesity HAC category with only 18 HAC-associated secondary diagnosis codes (and procedure codes) reported, where 17 diagnoses were reported with a POA indicator of “N” and 1 diagnosis was reported with a POA indicator of “Y.”

Chart B—POA Status of Current HACS: October 2009 Through September 2010
Selected HACFrequency as a secondarydiagnosisTreated as hospital acquired conditionsPOA = NNumberPercentPOA = UNumberPercentNot treated as Hospital acquiredconditionsPOA = YNumberPercentPOA = WNumberPercent
1. Foreign Object Retained After Surgery (CC)56527849.210.228650.600.0
2. Air Embolism (MCC)422969.000.01331.000.0
3. Blood Incompatibility (CC)351234.300.02365.700.0
4. Pressure Ulcer Stages III & IV (MCC)120,5821,4071.2810.1119,06598.7290.0
5. Falls and Trauma (MCC & CC)189,2315,7623.03260.2183,04896.7950.1
6. Catheter-Associated UTI (CC)18,2473,87721.2240.114,31978.5270.1
7. Vascular Catheter-Associated Infection (CC)10,0664,34643.2250.25,67356.4220.2
8. Poor Glycemic Control (MCC)16,4685653.4140.115,88896.510.0
9A. Surgical Site Infection Mediastinitis CABG (CC)403690.000.0410.000.0
9B. Surgical Site Infection Following Certain Orthopedic Procedures (CC)36522060.310.314439.500.0
9C. Surgical Site Infection Following Bariatric Surgery for Obesity (CC)181794.400.015.600.0
10. Pulmonary Embolism & DVT Orthopedic (MCC)3,8203,13282.0160.464817.0240.6
Total*359,47919,6815.54880.1339,11294.31980.1

As described in section II.F.1.f. of this preamble, in the FY 2009 IPPS final rule (73 FR 48486 through 48487), we adopted final payment policies to: (1) Pay the CC/MCC MS-DRGs for those HACs coded with “Y” and “W” indicators; and (2) not pay the CC/MCC MS-DRGs for those HACs coded with “N” and “U” indicators. We also discussed the comments we received urging CMS to consider changing the policy and to pay for those HACs assigned a POA indicator of “U” (documentation is insufficient to determine if the condition was present at the time of admission). We stated we would monitor the extent to which and under what circumstances the “U” POA reporting option is used. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43784 and 43785), we also discussed and responded to comments regarding HACs coded with the “U” indicator. As shown in Chart B above, RTI's analysis provides data on a total of 488 HAC-associated secondary diagnoses reported with a POA indicator of “U.” These 488 diagnoses represented 2.4 percent of the 20,169 diagnoses that were considered not POA (that is, POA indicator of “N” or “U”). Approximately 3 of the 10 conditions reported no diagnoses with POA indicators of “U”: Air embolism, Blood Incompatibility, and two of the three surgical site infections (Mediastinitis after CABG and SSI after bariatric surgery for obesity). For the two most frequently occurring conditions, the Falls and Trauma HAC category and Stage III and/or IV Pressure Ulcers, diagnoses with a POA indicator of “U” represented a small proportion of diagnoses that were considered not POA (that is, POA indicator of “N” or “U”). For the Falls and Trauma HAC category, 5.7 percent of diagnoses (326 cases) considered not POA were reported with a POA indicator of “U.” For Stage III and/or IV Pressure Ulcers, 5.4 percent of diagnoses (81 cases) considered not POA were reported with a POA indicator of “U.” These two categories also represented the conditions where diagnoses with a POA indicator of “U” were the highest proportion of diagnoses considered not POA. We consider the range of 0 to 5.7 percent to indicate that “U” is not used with great frequency for these 10 conditions. In the proposed rule, we stated that we did not contemplate a proposal to change our policy under which CMS does not pay at the higher CC/MCC amount when a selected HAC diagnosis code is reported with a POA indicator of “U.” The data analysis described above continues to support our policy.

We encourage readers to further review the RTI detailed report which demonstrates the frequency of each individual HAC-associated diagnosis code within the HAC categories. As an example, we note that in the Foreign Object Retained After Surgery HAC category, there are two unique ICD-9-CM diagnosis codes used to identify that condition: diagnosis code 998.4 (Foreign body accidentally left during a procedure) and diagnosis code 998.7 (Acute reaction to foreign substance accidentally left during a procedure). In the detailed RTI report, readers can view that diagnosis code 998.4 was reported 547 times and diagnosis code 998.7 was reported 18 times, across all MS-DRGs, for a total of 565 times. The RTI detailed report is available at the following Web site: http://www.rti.org/reports/cms/.

e. FY 2010 RTI Analysis of Frequency of Discharges and POA Indicator Reporting for Current HACs

RTI further analyzed the effect of the HAC provision by studying the frequency with which a HAC-associated diagnosis was reported as a secondary diagnosis with a POA indicator of “N” or “U” and, of that number, how many resulted in MS-DRG reassignment. In Chart C below, Column A shows the number of discharges for each HAC category where the HAC-associated diagnosis was reported as a secondary diagnosis. Column B shows the percent of discharges reporting a HAC-associated diagnosis code relative to the total discharges “at risk” in each HAC category. For HAC categories 1 through 8, both medical and surgical MS-DRGs are included in the total discharges “at risk” so this equates to 10,189,168 discharges. The remaining HAC categories are defined by the combination of diagnosis and procedure codes; therefore, only the surgical MS-DRGs that include the designated procedure codes are included in the total discharges “at risk.” For HAC 9a, the total discharges “at risk” equates to 97,341. For HAC 9b, the total discharges “at risk” equates to 118,815 and for HAC 9c, the total discharges “at risk” equates to 15,698. Lastly, for HAC 10, the total discharges “at risk” equates to 440,571.

Column C shows the number of discharges for each HAC reported with a POA indicator of “N” or “U.” For example, there were 42 discharges that reported Air Embolism as a secondary diagnosis. The chart shows that, of these 42 reported discharges, 29 discharges (69.05 percent) had a POA indicator of “N” or “U” and was identified as a HAC discharge. The HAC policy applied to these 29 discharges, and they could, therefore, have had an MS-DRG reassignment. Column E shows the number of discharges where an actual MS-DRG reassignment occurred. For the Air Embolism HAC, Column E shows that the number of discharges that resulted in actual MS-DRG reassignments is 15 (51.72 percent of the 29 discharges with a POA indicator of “N” or “U”). Thus, while there were 29 discharges (69.05 percent of the original42 that had air embolism reported as a secondary diagnosis) with an air embolism reported with a POA indicator of “N” or “U” identified as a HAC discharge that could have caused MS-DRG reassignment, 15 discharges (51.72 percent) experienced MS-DRG reassignments. There are a number of reasons why a selected HAC reported with a POA indicator of “N” or “U” will not result in MS-DRG reassignment. These reasons were illustrated with the diagram in section II.F.1.c. of this preamble and will be discussed in further detail in section II.F.3.e. of this preamble.

Chart C below also shows that, of the 317,644 discharges with a HAC-associated diagnosis as a secondary diagnosis, 3,587 discharges ultimately resulted in MS-DRG reassignment. As we discuss below, there were 15 claims that resulted in MS-DRG reassignment where 2 HACs were reported on the same admission. The four HAC categories that had the most discharges resulting in MS-DRG reassignment were: (1) Falls and Trauma; (2) Pulmonary Embolism and DVT Orthopedic (Orthopedic PE/DVT); (3) Pressure Ulcer Stages III & IV; and (4) Catheter-Associated Urinary Tract Infection (UTI).

Codes falling under the Falls and Trauma HAC category were the most frequently reported secondary diagnoses with 154,371 discharges. Of these 154,371 discharges, 5,454 (3.53 percent) were coded as not POA and identified as HAC discharges. This category also contained the greatest number of discharges that resulted in an MS-DRG reassignment. Of the 5,454 discharges within this HAC category that were not POA, 1,672 (30.66 percent) resulted in an MS-DRG reassignment.

Of the 317,644 total discharges reporting HAC-associated diagnoses as a secondary diagnosis, 3,494 discharges were coded with a secondary diagnosis of PE/DVT Orthopedic. Of these 3,494 discharges, 2,876 (82.31 percent) were coded as not POA and identified as HAC discharges. This category contained the second greatest number of discharges resulting in an MS-DRG reassignment. Of the 2,876 discharges in this HAC category that were not POA, 1,206 discharges (41.93 percent) resulted in an MS-DRG reassignment.

The Pressure Ulcer Stages III & IV category had the second most frequently coded secondary diagnoses, with 114,138 discharges. Of these discharges, 1,444 (1.27 percent) were coded as not POA and identified as HAC discharges. This category contained the third greatest number of discharges resulting in an MS-DRG reassignment. Of the 1,444 discharges in this HAC category that were not POA, 292 discharges (20.22 percent) resulted in an MS-DRG reassignment.

The Catheter-Associated UTI category had the third most frequently coded secondary diagnoses, with 18,247 discharges. Of these discharges, 3,885 (21.29 percent) were coded as not POA and identified as HAC discharges. This category contained the fourth greatest number of discharges resulting in an MS-DRG reassignment. Of the 3,885 discharges in this HAC category that were not POA, 223 discharges (5.74 percent) resulted in a MS-DRG reassignment.

The remaining 6 HAC categories only had 194 discharges that ultimately resulted in MS-DRG reassignment. We note that, even in cases where a large number of HAC-associated secondary diagnoses were coded as not POA, this finding did not necessarily translate into a large number of discharges that resulted in MS-DRG reassignment. For example, only 22 of the 4,366 Vascular Catheter-Associated Infection secondary diagnoses that were coded as not POA and identified as HAC discharges resulted in a MS-DRG reassignment.

There were a total of 364 discharges with a HAC-associated secondary diagnosis reporting a POA indicator of “N” or “U” that were excluded from acting as a HAC discharge (subject to MS-DRG reassignment) due to the CC Exclusion List logic within the GROUPER. The CC Exclusion List identifies secondary diagnosis codes designated as a CC or MCC that are disregarded by the GROUPER logic when reported with certain principal diagnoses. For example, a claim with the principal diagnosis code of 250.83 (Diabetes with other specified manifestations, type 1 [juvenile type], uncontrolled) and a secondary diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile type], uncontrolled) with a POA indicator of “N” would result in the HAC-associated secondary diagnosis code 250.13 being ignored as a CC. According to the CC Exclusion List, code 250.13 is excluded from acting as a CC when code 250.83 is the principal diagnosis. As a result, the HAC logic would not be applicable to that case. For a detailed discussion on the CC Exclusion List, we refer readers to section II.G.9. of this preamble.

Discharges where the HAC logic was not applicable due to the CC Exclusion List occurred among the following 6 HAC categories: Pressure Ulcer Stages III and IV (29 cases); Falls and Trauma (263 cases); Catheter-Associated UTI (16 cases); Vascular Catheter-Associated Infection (5 cases); Manifestations of Poor Glycemic Control (50 cases); and Surgical Site Infection Following Certain Orthopedic Procedures (1 case). Further information regarding the specific number of cases that were excluded for each HAC-associated secondary diagnosis code within each of the above mentioned HAC categories is also available in the RTI detailed report, which can be found at: http://www.rti.org/reports/cms/.

In summary, Chart C below demonstrates that there were a total of 317,644 discharges with a reported HAC-associated secondary diagnosis. Of the total 317,644 discharges, 6.0 percent, or 19,143 discharges, were HACs reported with a POA indicator of “N” or “U” that were identified as a HAC discharge. Approximately 18.7 percent, or 3,587 discharges, of these 19,143 discharges resulted in MS-DRG reassignments.

Chart C—Discharge Frequencies of Current CMS HACS October 2009 Through September 2010
Selected HAC categoryDischarges with thiscondition as secondarydiagnosisNumber(column a)Percent 2 (column b)Discharges identified as a HACNumber(column c)Percent 3 (column d)Discharges that change MS-DRG due to HACNumber(column e)Percent 4 (column f)
1. Foreign Object Retained After Surgery5630.0127849.384415.83
2. Air Embolism420.002969.051551.72
3. Blood Incompatibility350.001234.2900.00
4. Pressure Ulcer Stages III & IV114,1381.121,4441.2729220.22
5. Falls and Trauma
a. Fracture137,8881.354,7003.411,43930.62
b. Dislocation1,1050.01353.17411.43
c. Intracranial Injury15,8440.167064.4623433.14
d. Crushing Injury410.0024.88150.00
e. Burn2,2970.02391.70615.38
f. Electric Shock8180.0191.1000.00
Less: Discharges with multiple Falls & Trauma−3,622−0.04−37−1.02−12−32.43
5. Falls and Trauma: Unduplicated Total154,3711.525,4543.531,67230.66
6. Catheter-Associated UTI18,2470.183,88521.292235.74
7. Vascular Catheter-Associated Infection10,0660.104,36643.37220.50
8. Poor Glycemic Control16,2670.165263.2310720.34
9a. SSI Mediastinitis CABG400.043690.00411.11
9b. SSI Orthopedic3630.3122060.6120.91
9c. SSI Bariatric180.111794.4400.00
10. Pulmonary Embolism & DVT Orthopedic3,4940.792,87682.311,20641.93
Total 1 317,64419,1433,587

An extremely small number of discharges had multiple HACs reported during the same stay. In reviewing the approximately 10.2 million claims, RTI found approximately 94 cases in which 2 HACs were reported on the same discharge. Chart D below summarizes these cases. Thirty-two of the cases with 2 HACs involved Pressure Ulcer Stages III & IV, and 31 cases involved Falls or Trauma. Other multiple HAC cases included 27 Catheter-Associated UTI cases, 3 Vascular Catheter-Associated Infection cases and 1 Foreign Object Retained After Surgery case. There were eight cases in which a Falls and Trauma HAC was reported together with a Pressure Ulcer Stages III & IV HAC.

Some of these cases with multiple HACs reported had both HAC codes ignored in the MS-DRG assignment. Of these 66 claims, 49 did not receive higher payments based on the presence of these reported HACs, and we describe these claims in section II.F.3.f.(2) of this preamble. Depending on the MS-DRG to which the cases were originally assigned, ignoring the HAC codes would have led to a MS-DRG reassignment if there were no other MCCs or CCs reported, if the MS-DRG was subdivided into severity levels, and if the case were not already in the lowest severity level prior to ignoring the HAC codes.

Chart D—Claims With More Than One HAC Secondary Diagnosis October 2009 Through September 2010
HAC1. Foreignobject—CC4. Pressure ulcer stages III & IV—MCC5. Falls and trauma—MCC & CC6. Catheter-associatedUTI—CC7. Vascular catheter-associatedinfection—CC
5. Falls and trauma—MCC & CC8
6. Catheter-Associated UTI—CC812
7. Vascular Catheter-Associated Infection—CC12621
8. Poor Glycemic Control—MCC121
9B. Surgical Site Infection Following Certain Orthopedic Procedures—CC12
10. Pulmonary Embolism & DVT Orthopedic—MCC3116
Total13231273
f. RTI Analysis of Circumstances When Application of HAC Provisions Would Not Result in MS-DRG Reassignment for Current HACs

As discussed in section II.F.1. and illustrated in the diagram in section II.F.1.c. of this preamble, there are instances when the MS-DRG assignment does not change even when there is a HAC as a secondary diagnosis (meaning a HAC-associated secondary diagnosis has a POA indicator of either “N” or “U.”) In analyzing our claims data, RTI identified four main reasons why a MS-DRG assignment would not change despite the presence of a HAC. Those four reasons are described below and are shown in Chart E below. Column A shows the frequency of discharges that included a HAC-associated secondary diagnosis. ColumnB shows the frequency of discharges where the HAC-associated secondary diagnosis was coded as not POA and, therefore, identified as a HAC discharge. Column C shows the frequency of discharges in which the HAC-associated secondary diagnosis coded as not POA resulted in a change in MS-DRG. Columns D, E, F, and G show the frequency of discharges in which the HAC-associated secondary diagnosis coded as not POA did not result in a change in MS-DRG assignment. Columns D, E, F, and G are explained in more detail below.

(1) Other MCCs/CCs Prevent Reassignment

Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below indicates the number of cases reporting a HAC (cases with HAC-associated diagnosis codes with a POA of “N” or “U”) that did not have a MS-DRG reassignment because of the presence of other secondary diagnoses on the MCC or CC list. A claim that is coded with a HAC-associated secondary diagnoses and a POA status of either “N” or “U” may have other secondary diagnoses that are classified as an MCC or a CC. In such cases, the presence of these other MCC and CC diagnoses will still lead to the assignment of a higher severity level, despite the fact that the GROUPER software is disregarding the ICD-9-CM code that identifies the selected HAC in making the MS-DRG assignment for that claim. For example, there were 156 cases in which the ICD-9-CM codes for the Foreign Object Retained After Surgery HAC category were present, but the presence of other secondary diagnoses that were MCCs or CCs resulted in no change to the MS-DRG assignment. Chart E shows that a total of 11,818 cases with HACs did not have a change in the MS-DRG assignment because of the presence of other reported MCCs and CCs. This represents approximately 76 percent of the 15,556 cases with HACs that did not have a change in MS-DRG assignment.

(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment

Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment) shows the frequency with which discharges with a HAC (cases with HAC-associated diagnosis codes with a POA of “N” or “U”) did not result in an MS-DRG change because the MS-DRG is subdivided solely by the presence or absence of an MCC. A claim with a HAC and a POA indicator of either “N” or “U” may be assigned to an MS-DRG that is subdivided solely by the presence or absence of an MCC. In such cases, removing a HAC ICD-9-CM CC code will not lead to further changes in the MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in the footnotes to the chart and include the following examples:

  • MS-DRGs 100 and 101 (Seizures with or without MCC, respectively)
  • MS-DRGs 102 and 103 (Headaches with or without MCC, respectively)

The codes that fall under the HAC category of Foreign Object Retained After Surgery are CCs. If this case were assigned to a MS-DRG with an MCC subdivision such as MS-DRGs 100 and 101, the presence of the HAC code would not affect the MS-DRG severity level assignment. In other words, if the Foreign Object Retained After Surgery code were the only secondary diagnosis reported, then the case would be assigned to MS-DRG 101 (Seizure without MCC). If the POA indicator was “N,” the HAC Foreign Object Retained After Surgery code would be ignored in the MS-DRG assignment logic. Despite the fact that the code was ignored, the case would still be assigned to the same, lower severity level MS-DRG. Therefore, there would be no impact on the MS-DRG assignment.

Column E in Chart E below shows that there were 2,282 cases where the HAC code was reported with an “N” or “U” and the MS-DRG assignment did not change because the case was already assigned to the lowest severity level. This represents approximately 15 percent of the 15,556 cases with HACs that did not have a change in MS-DRG assignment.

(3) No Severity Levels

Column F (Number of MS-DRGs with No Severity Levels) shows the frequency with which discharges with an HAC (cases with HAC-associated diagnosis codes with a POA of “N” or “U”) did not result in an MS-DRG change because the MS-DRG that the case was assigned to is not subdivided by severity levels. For instance, MS-DRG 311 (Angina Pectoris) has no severity level subdivisions; this MS-DRG is not split based on the presence of an MCC or a CC. If a patient assigned to this MS-DRG develops a secondary diagnosis such as a Stage III pressure ulcer after admission, the condition would be considered a HAC. The code for the Stage III pressure ulcer would be ignored in the MS-DRG assignment because the condition developed after the admission (the POA indicator was “N”). Despite the fact that the ICD-9-CM code for the HAC Stage III pressure ulcer was ignored, the MS-DRG assignment would not change. The case would still be assigned to MS-DRG 311. Chart E below shows that 1,449 cases reporting a HAC (cases with HAC-associated diagnosis codes with a POA of “N” or “U”) did not undergo a change in the MS-DRG assignment based on the fact that the case was assigned to a MS-DRG that had no severity subdivisions (that is, the MS-DRG is not subdivided based on the presence or absence of an MCC or a CC, rendering the presence of the HAC irrelevant for payment purposes). This represents approximately 9 percent of the 15,556 cases with HACs that did not have a change in MS-DRG assignment.

(4) MS-DRG Logic

Column G (MS-DRG Logic Issues) shows the frequency with which a HAC (cases with HAC-associated diagnosis codes with a POA of “N” or “U”) did not result in an MS-DRG change because of MS-DRG assignment logic. There were seven discharges where the HAC criteria were met and the HAC logic was applied. However, due to the structure of the MS-DRG logic, these cases did not result in MS-DRG reassignment. These cases may appear similar to those discharges where the MS-DRG is subdivided into two severity levels by the presence or absence of an MCC and did not result in MS-DRG reassignment. However, these discharges differ slightly in that the MS-DRG logic also considers specific procedures that were reported on the claim. In other words, for certain MS-DRGs, a procedure may be considered the equivalent of an MCC or a CC. The presence of the procedure code dictates the MS-DRG assignment despite the presence of the HAC-associated secondary diagnosis code with a POA indicator of “N” or “U.”

For example, a claim with the principal diagnosis code of 441.1 (Thoracic aneurysm, ruptured) with HAC-associated secondary diagnosis code of 996.64 (Infection and inflammatory reaction due to indwelling urinary catheter) and non-HAC secondary diagnosis code 599.0 (Urinary tract infection, site not specified), having POA indicators of “Y,” “N,” and “N,” respectively, and procedure code 39.73 (Endovascular implantation of graft in thoracic aorta) currently results in an assignment to MS-DRG 237 (Major Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair). In this case, the thoracic aortic aneurysm repair is what dictated the MS-DRG assignment, and the presence of the HAC-associated secondary diagnosis code, 996.64, did not affect the MS-DRG assignment. Other examples of MS-DRGs that are subdivided in this same manner are as follows:

  • MS-DRG 029 (Spinal procedures with CC or Spinal Neurostimulators)
  • MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or Major Device)
  • MS-DRG 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents)

Column G in the chart below shows that three of the seven cases that did not result in MS-DRG reassignment due to the MS-DRG logic were in the Falls and Trauma HAC category, two cases were in the Catheter Associated UTI HAC category and two cases were in the Vascular Catheter-Associated Infection HAC Category.

In conclusion, a total of 15,556 cases (11,818 + 2,282 +1,449 + 7) did not have a change in MS-DRG assignment, regardless of the presence of a HAC. The reasons described above explain why only 3,587 cases had a change in MS-DRG assignment despite the fact that there were 19,143 HACs (cases with HAC-associated diagnosis codes with a POA of “N” or “U”).

Chart E—Reasons HAC Did Not Change MS-DRG Assignment October 2009 Through September 2010
Selected HAC categoryNumber of discharges with this condition as secondary diagnosis(Column A)Number of discharges identified as a HAC(Column B)Number of HAC discharges that change MS-DRG due to HAC(Column C)HAC discharges that do not change MS-DRGNumber of other MCCs/CCs that prevent reassignment(Column D)Number of MS-DRGs with two severity levels where HAC does not affect MS-DRG assignment *(Column E)Number of MS-DRGs with no severity levels(Column F)Other MS-DRG logic issues **(Column G)
1. Foreign Object Retained After Surgery—CC5632784415667110
2. Air Embolism—MCC42291514000
3. Blood Incompatibility—CC351209030
4. Pressure Ulcer Stages III & IV—MCC114,1381,44429289502570
5. Falls and Trauma—MCC & CC154,3715,4541,6722,8585703513
6. Catheter-Associated UTI—CC18,2473,8852232,9304902402
7. Vascular Catheter-Associated Infection—CC10,0664,366223,6561894972
8. Poor Glycemic Control—MCC & CC16,2675261073643520
9A. Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass Graft (CABG)—MCC4036424080
9B. Surgical Site Infection Following Certain Orthopedic Procedures—CC36322021367930
9C. Surgical Site Infection Following Bariatric Surgery for Obesity—CC1817017000
10. Pulmonary Embolism & DVT Orthopedic—MCC & CC3,4942,8761,206759884270
Total 1 317,64419,1433,58711,8182,2821,4497
g. RTI Analysis of Coding Changes for HAC-Associated Secondary Diagnoses for Current HACs

In addition to studying claims from October 2009 through September 2010, RTI evaluated claims data from 3 years prior to determine if there were significant changes in the number of discharges with a HAC-associated code being reported as a secondary diagnosis. To provide consistency with the FY 2010 data studied, RTI examined claims using discharge dates from October 2006 through September 2007 (for FY 2007), October 2007 through September 2008 (for FY 2008), October 2008 through September 2009 (FY 2009) and compared these data to the FY 2010 data.

We refer readers to the RTI detailed report for further information regarding all the conditions in each fiscal year (FY 2007 through FY 2010) as described above at the Web site: http://www.rti.org/reports/cms/.

h. RTI Analysis of Estimated Net Savings for Current HACs

RTI determined estimates of the net savings generated by the HAC payment policy based on MedPAR claims for FY 2010, from October 2009 through September 2010.

(1) Net Savings Estimation Methodology

The payment impact of a HAC is the difference between the IPPS payment amount under the initially assigned MS-DRG and the amount under the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on the MedPAR files. To calculate this payment impact, RTI modeled the IPPS payments for each MS-DRG following the same approach that we use to model the impact of IPPS annual rule changes. Specifically, RTI replicated the payment computations carried out in the IPPS PRICER program using payment factors for IPPS providers as identified in various CMS downloaded files. The files used are as follows:

  • Version 27 of the Medicare Severity GROUPER software (applicable to discharges between October 1, 2009 and September 30, 2010). IPPS MedPAR claims were run through this file to obtain needed HAC-POA output variables.
  • The FY 2010 MS-DRG payment weight file. This file includes the weights, geometric mean length of stay (GLOS), and the postacute transfer payment indicators.
  • CMS standardized operating and capital rates. Tables 1A through 1C, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2010, include the full update and reduced update amounts, as well as the information needed to compute the blended amount for providers located in Puerto Rico.
  • The IPPS impact file for FY 2010, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2010/. This file includes the wage index and geographic adjustment factors plus the provider type variable to identify providers qualifying for alternative hospital-specific amounts and their respective hospital-specific payment rates.
  • The IPPS impact file for FY 2011, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/11FR/. This file includes indirect medical education (IME) and disproportionate share (DSH) percent adjustments as well as the operating and capital CCRs that were in effect as of March 2010.
  • CMS historical provider-specific files (PSFs). These files include the indicator to identify providers subject to the full or reduced standardized rates and the applicable operating and capital CCRs. A SAS version was downloaded from the Web site at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp. There were 50 providers with discharges in the final HAC analysis file that did not appear in the FY 2010 impact file, of which 11 also did not appear in the FY 2011 impact file. For these providers, we identified the geographic CBSA from the historical PSF and assigned the wage index using values from Tables 4A and 4C as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2010/. For providers in the FY 2011 file but not the FY 2010 file, we used IME and DSH rates from FY 2011. The 11 providers in neither impact file were identified as non-IME and non-DSH providers in the historical PSF file.

The steps for estimating the HAC payment impact are as follows:

Step 1: Re-run the Medicare Severity GROUPER on all records in the analysis file. This is needed to obtain information on actual HAC-related MS-DRG reassignments in the file, and to identify the CCs and MCCs that contribute to each MS-DRG assignment.

Step 2: Model the base payment and outlier amounts associated with the initial MS-DRG if the HAC were excluded using the computations laid out in the CMS file “Outlier Example FY 2007 new.xls,” as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage, and modified to accommodate FY 2010 factors. RTI's first round of computations treated all claims as though paid under standard IPPS rules without adjusting for short-stay transfers or hospital-specific payment amounts.

Step 3: Model the base payment and outlier amounts associated with the final MS-DRG where the HAC was excluded using the computations laid out in the CMS file “Outlier Example FY 2007 new.xls,” as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage and modified to accommodate FY 2010 factors. RTI's first round of computations treated all claims as though paid under standard IPPS rules without adjusting for short-stay transfers or hospital-specific payment amounts.

Step 4: Compute MS-DRG base savings as the difference between the nonoutlier payments for the initial and final MS-DRGs. Compute outlier amounts as the difference in outlier amounts due under the initial and final reassigned MS-DRG. Compute net savings due to HAC reassignment as the sum of base savings plus outlier amounts.

Step 5: Adjust the model to incorporate short-stay transfer payment adjustments.

Step 6: Adjust the model to incorporate hospital-specific payments for qualifying rural providers receiving the hospital-specific payment rates.

It is important to mention that using the methods described above, the MS-DRG and outlier payments amounts that are modeled for the final assigned MS-DRG do not always match the MS-DRG price and outlier amounts that appear in the MedPAR record. There are several reasons for this. Some discrepancies are caused by using single wage index, IME, and DSH factors for the full period covered by the discharges, when, in practice, these payment factors can be adjusted for individual providers during the course of the fiscal year. In addition, RTI's approach disregards any Part A coinsurance amounts owed by individual beneficiaries with greater than 60 covered days in a spell of illness. Five percent of all HAC discharges showed at least some Part A coinsurance amount due from the beneficiary, although less than 2 percent of reassigned discharges (55 cases in the analysis file) showed Part A coinsurance amounts due. Any Part A coinsurance payments would reduce the actual savings incurred by the Medicare program.

There are also a number of less common special IPPS payment situations that are not factored intoRTI's modeling. These could include new technology add-on payments, payments for blood clotting factors, reductions for replacement medical devices, adjustments to the capital rate for new providers, and adjustments to the capital rate for certain classes of providers who are subject to a minimum payment level relative to capital cost.

(2) Net Savings Estimate

Chart F below summarizes the estimated net savings of current HACs based on MedPAR claims from October 2009 through 2010, based on the methodology described above. Column A shows the number of discharges where a MS-DRG reassignment for each HAC category occurred. For example, there were 15 discharges with an air embolism that resulted in an actual MS-DRG reassignment. Column B shows the total net savings caused by MS-DRG reassignments for each HAC category. Continuing with the example of air embolism, the chart shows that the 15 discharges with an MS-DRG reassignment resulted in a total net savings of $118,785. Column C shows the net savings per discharge for each HAC category. For the Air Embolism HAC category, the net savings per discharge is $7,919. Because a single discharge can have more than one HAC, discharges can appear in more than one row. The total net savings shown in the last line of Column B is adjusted to avoid duplicate counting and is therefore less than the sum of the net savings from the lines above.

Chart F—Estimated Net Savings of Current HACs October 2009 Through September 2010
Selected HACNumber ofdischarges thatchange MS-DRGdue to HACNet savings(in dollars)Net savingsper discharge(in dollars)
(Column A)(Column B)(Column C)
1. Foreign Object Retained After Surgery44$159,841$3,633
2. Air Embolism15118,7857,919
3. Blood Incompatibility000
4. Pressure Ulcer Stages III & IV2921,795,4566,149
5. Falls and Trauma:   
a. Fracture1,4398,119,3085,642
b. Dislocation413,2443,311
c. Intracranial Injury2341,127,0664,817
d. Crushing Injury17,8267,826
e. Burn615,5942,599
f. Shock000
Less: Discharges with Multiple Falls & Trauma 1 −12−82,330−6,861
5. Falls and Trauma: Unduplicated Total1,6729,200,7085,503
6. Catheter-Associated UTI223696,6623,124
7. Vascular Catheter-Associated Infection2277,6903,531
8. Poor Glycemic Control107604,3085,648
9a. SSI Mediastinitis CABG432,3928,098
9b. SSI Orthopedic215,0447,522
9c. SSI Bariatric000
10. Pulmonary Embolism & DVT Orthopedic1,2068,826,9127,319
Total3,58721,527,7986,002
Less: Discharges with Multiple HACs 2 −15−77,703−5,180
Unduplicated Total3,57221,450,0956,005

As shown in Chart F above, the unduplicated total net savings calculated for the 12-month period from October 2009 through September 2010 was approximately $21.5 million. The three HACs with the largest number of discharges resulting in MS-DRG reassignment, Falls and Trauma, Orthopedic PE/DVT, and Pressure Ulcer Stages III & IV, generated approximately $19.83 million of net savings for the 12-month period. Estimated net savings for the 12-month period associated with the Falls and Trauma category were approximately $9.20 million. Estimated net savings associated with Orthopedic PE/DVT for the 12-month period were approximately $8.83 million. Estimated net savings for the 12-month period associated with Pressure Ulcer Stages III & IV were approximately $1.80 million.

The mean net savings per discharge calculated for the 12-month period from October 2009 through September 2010 was approximately $6,005. The HAC categories of Air Embolism; SSI, Mediastinitis, Following Coronary Artery Bypass Graft (CABG); and SSI Following Certain Orthopedic Procedures had the highest net savings per discharge, but represented a small proportion of total net savings because the number of discharges that resulted in MS-DRG reassignment for these HACs was low. With the exception of Blood Incompatibility and SSI Following Bariatric Surgery for Obesity, where no savings occurred because no discharges resulted in MS-DRG reassignment, Catheter-Associated UTI had the lowest net savings per discharge.

We refer readers to the RTI detailed report available at the Web site: http://www.rti.org/reports/cms/.

As mentioned previously, an extremely small number of cases in the 12-month period of FY 2010 analyzed by RTI had multiple HACs during the same stay. In reviewing approximately 10.2 million claims, RTI foundapproximately 94 cases where 2 HACs were reported on the same admission as noted in section II.F.3.g.(2) of this preamble. Of these approximately 94 claims, 15 resulted in MS-DRG reassignment. Chart G below summarizes these cases. There were 15 cases that had 2 HACs not POA that resulted in an MS-DRG reassignment. Of these, four discharges involved Pressure Ulcer Stages III & IV, four discharges involved Falls and Trauma, and seven discharges involved Vascular Catheter-Associated Infection.

Chart G—Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred October 2009 Through September 2010
Selected HAC4. Pressure Ulcer Stages III & IV-MCC5. Falls and Trauma—MCC & CC7. Vascular Catheter-Associated Infection—CC
5. Falls and Trauma—MCC & CC2
6. Catheter-Associated Urinary Tract Infection (UTI)—CC126
7. Vascular Catheter-Associated Infection—CC12
9B. Surgical Site Infection Following Certain Orthopedic Procedures—CC1
Total447

As we discuss in section II.F.1.b. of this preamble, implementation of this policy is the part of an array of Medicare VBP tools that we are using to promote increased quality and efficiency of care. We point out that a decrease over time in the number of discharges where these conditions are not POA is a desired consequence. We recognize that estimated net savings would likely decline as the number of such discharges decline. However, we believe that the sentinel effect resulting from CMS identifying these conditions is critical. (We refer readers to section IV.A. of this preamble for a discussion of the inclusion of the incidence of these conditions in the Hospital IQR Program.) It is our intention to continue to monitor trends associated with the frequency of these HACs and the estimated net payment impact through RTI's program evaluation and possibly beyond.

i. Previously Considered Candidate HACs—RTI Analysis of Frequency of Discharges and POA Indicator Reporting

RTI evaluated the frequency of conditions previously considered, but not adopted as HACs in prior rulemaking, that were reported as secondary diagnoses (across all approximately 10.2 million discharges), as well as the POA indicator assignments for these conditions. Chart H below indicates that the four previously considered candidate conditions most frequently reported as a secondary diagnosis were: (1) Clostridium Difficile-Associated Disease (CDAD), which demonstrated the highest frequency, with a total of 90,243 secondary diagnoses codes being reported for that condition, of which 29,306 reported a POA indicator of “N”; (2) Methicillin-Resistant Staphylococcus aureus, with a total of 72,313 secondary diagnoses codes being reported for that condition, with 2,165 of those reporting a POA indicator of “N”; and (3) Staphylococcus aureus Septicemia, with a total of 24,327 secondary diagnoses codes being reported for that condition, with 5,490 of those reporting a POA indicator of “N”; and (4) Iatrogenic Pneumothorax, with a total of 22,506 secondary diagnoses codes being reported for that condition, with 19,581 of those reporting a POA indicator of “N.” As these four conditions had the most significant impact for reporting a POA indicator of “N,” it is reasonable to believe that these same three conditions would have the greatest number of potential MS-DRG reassignments. The frequency of discharges for the previously considered HACs that could lead to potential changes in MS-DRG assignment is discussed in the next section. We take this opportunity to remind readers that because more than one previously considered HAC diagnosis code can be reported per discharge (on a single claim) that the frequency of these diagnosis codes may be more than the actual number of discharges with a previously considered candidate condition reported as a secondary diagnosis.

Chart H—POA Status of Previously Considered “Candidate” HAC Conditions—October 2009 Through September 2010
Previously considered HAC conditionFrequency as a secondarydiagnosisNot Present on AdmissionPOA = NNumberPercentPOA = UNumberPercentPresent on AdmissionPOA = YNumberPercentPOA = WNumberPercent
1. Clostridium Difficile-Associated Disease (CDAD)90,24329,30632.474160.4660,39766.931240.14
2. Delirium75719025.1056774.9000.00
3. Legionnaire's Disease426276.3420.4739793.1900.00
4. Staphylococcus aureus Septicemia24,3275,49022.57650.2718,73877.03340.14
5. Methicillin-Resistant Staphylococcus aureus72,3132,1652.991240.1770,00896.81160.02
6. Iatrogenic Pneumothorax22,50619,58187.00150.072,90712.9230.01
7. Ventilator-Associated Pneumonia4,2783,15973.8450.121,11025.9540.09

In Chart I below, Column A shows the number of discharges for each previously considered candidate HAC category when the condition was reported as a secondary diagnosis. For example, there were 90,243 discharges that reported CDAD as a secondary diagnosis. Previously considered candidate HACs reported with a POA indicator of “N” or “U” may cause MS-DRG reassignment (which would result in reduced payment to the facility).Column C shows the discharges for each previously considered candidate HAC reported with a POA indicator of “N” or “U.” Continuing with the example of CDAD, Chart I shows that, of the 90,243 discharges, 29,722 discharges (32.94 percent) had a POA indicator of “N” or “U.” Therefore, there were a total of 29,722 discharges that could potentially have had an MS-DRG reassignment. Column E shows the number of discharges where an actual MS-DRG reassignment could have occurred; the number of discharges with CDAD that could have resulted in actual MS-DRG reassignments is 830 (2.79 percent). Thus, while there were 29,722 discharges with CDAD reported with a POA indicator of “N” or “U” that could potentially have had an MS-DRG reassignment, the result was 830 (2.79 percent) potential MS-DRG reassignments. As discussed above, there are a number of reasons why a condition reported with a POA indicator of “N” or “U” would not result in a MS-DRG reassignment.

In summary, Chart I below demonstrates there were a total of 214,785 discharges with a previously considered candidate HACs reported as a secondary diagnosis. Of those 60,538 discharges were reported with a POA indicator of “N” or “U.” The total number of discharges that could have resulted in MS-DRG reassignments is 3,768.

Chart I—Previously Considered “Candidate” HAC Discharge Frequencies—October 2009 Through September 2010
Previously considered HAC conditionDischarges with thiscondition as secondarydiagnosis 2 Number(Column A)Percent(Column B)Discharges with thiscondition not present onAdmission(POA = “N” or “U”) 3 Number(Column C)Percent(Column D)Cases that could change MS-DRG due topreviously consideredcandidate HAC 4 Number(Column E)Percent(Column F)
1. Clostridium Difficile-Associated Disease (CDAD)90,2430.8929,72232.948302.79
2. Delirium7570.0119025.10147.37
3. Legionnaire's Disease4260.00296.81310.34
4. Staphylococcus aureus Septicemia24,2880.245,54922.85970.02
5. Methicillin-Resistant Staphylococcus aureus72,2870.712,2883.1700.00
6. Iatrogenic Pneumothorax22,5060.2219,59687.072,82114.40
7. Ventilator-Associated Pneumonia4,2780.043,16473.9630.09
Total 1 214,78560,5383,768
j. Current and Previously Considered Candidate HACs—RTI Report on Evidence-Based Guidelines

The RTI program evaluation includes an annual report that provides references for all evidence-based guidelines available for each of the selected and previously considered candidate HACs that provide recommendations for the prevention of the corresponding conditions. Guidelines were primarily identified using the AHRQ National Guidelines Clearing House (NGCH) and the CDC, along with relevant professional societies. Guidelines published in the United States were used, if available. In the absence of U.S. guidelines for a specific condition, international guidelines were included.

Evidence-based guidelines that included specific recommendations for the prevention of the condition were identified for each of the 10 selected conditions. In addition, evidence-based guidelines were also found for the previously considered candidate conditions.

RTI prepared the annual report to summarize its findings regarding evidence-based guidelines, which can be found on the Web site at: http://www.rti.org/reports/cms.

k. Final Policy Regarding Current HACs and Previously Considered Candidate HACs

We believe that the RTI analysis summarized above does not provide additional information that would require us to change our previous determinations regarding either current HACs (as described in section II.F.2. of this preamble) or previously considered candidate HACs in the FY 2008 IPPS final rule with comment period (72 FR 47200 through 47218), the FY 2009 IPPS final rule (73 FR 48471 through 48491), and the FY 2010 IPPS/RY 2010 LTCH final rule (74 FR 43782 through 43785). We note that we are finalizing revisions to the Falls and Trauma HAC category, Surgical Site Infection Following Certain Bariatric procedures and DVT/PE Following Certain Orthopedic Procedures HAC categories as discussed in section II.F.2. of this preamble. (We also note that, as discussed in section II.F.3.b. of this preamble, we are not contemplating changing our current policy regarding the treatment of the “U” POA indicator.) However, we continue to encourage public dialogue about refinements to the HAC list.

We refer readers to section II.F.6. of the FY 2008 IPPS final rule with comment period (72 FR 47202 through 47218) and to section II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48491) for detailed discussion supporting our determination regarding each of these conditions.

G. Changes to Specific MS-DRG Classifications

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25816), we invited public comment on each of the MS-DRG classification proposed changes described below, as well as our proposals to maintain certain existing MS-DRG classifications, which are also discussed below. In some cases, we proposed changes to the MS-DRG classifications based on our analysis of claims data. In other cases, we proposed to maintain the existing MS-DRG classification based on our analysis ofclaims data. Below, we summarize the public comments that we received, if any, on our proposals, present our responses, and state our final policies.

1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Noninvasive Mechanical Ventilation

We received a request from the National Association for Medical Direction of Respiratory Care (NAMDRC) which suggested that we create a new MS-DRG for patients with certain respiratory conditions who receive noninvasive mechanical ventilation (NIV). The requestor stated that patients who receive NIV are almost always placed within an intensive care unit (ICU) or an emergency department and use the resources available in those areas. The requestor recommended that this new MS-DRG recognize current practice and allow for appropriate reimbursement for the technical complexity and monitoring required for NIV as a form of acute life support. According to the requestor, NIV has evolved to become first-line supportive therapy for several forms of acute respiratory failure. Lastly, the requestor recommended that the new MS-DRG identify NIV usage of approximately 6 to 12 hours to account for the “legitimate but very short term use of this therapy.”

Historically, the concept of mechanical ventilation for critically ill patients included establishment of an artificial airway, invasively, through endotracheal intubation or a tracheostomy. According to the requestor, a significant portion of these patients can now be treated through noninvasive mechanical ventilation with the use of a face or nasal mask. In the ICD-9-CM classification system, NIV is described by procedure code 93.90 (Noninvasive mechanical ventilation), while invasive mechanical ventilation is described by procedure codes 96.70 (Continuous invasive mechanical ventilation of unspecified duration), 96.71 (Continuous invasive mechanical ventilation for less than 96 consecutive hours), and 96.72 (Continuous invasive mechanical ventilation for 96 consecutive hours or more). The requestor submitted external data to illustrate trends in NIV use over the past decade. These data were derived from a survey conducted during 2002-2003 of several hospitals located in Massachusetts and Rhode Island. The requestor believed that these data indicate patients with exacerbation of chronic obstructive pulmonary disease (COPD), acute pulmonary edema, or worsening congestive heart failure are successfully managed with NIV.

For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010 MedPAR claims data that are representative of the respiratory conditions the requestor identified when reported with NIV. We found 14 MS-DRGs reporting procedure code 93.90 using the above specifications. The MS-DRGs are as follows:

Pre-MDC MS-DRGs:

  • MS-DRG 003 (ECMO or Tracheostomy with Mechanical Ventilation 96+ Hrs or PDX Except Face, Mouth & Neck with Major O.R.)
  • MS-DRG 004 (Tracheostomy with Mechanical Ventilation 96+ Hrs or PDX Except Face, Mouth & Neck without Major O.R.)
  • MS-DRGs:
  • MS-DRG 189 (Pulmonary Edema & Respiratory Failure)
  • MS-DRG 190 (Chronic Obstructive Pulmonary Disease with MCC)
  • MS-DRG 191 (Chronic Obstructive Pulmonary Disease with CC)
  • MS-DRG 192 (Chronic Obstructive Pulmonary Disease without CC/MCC)
  • MS-DRG 204 (Respiratory Signs & Symptoms)
  • MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support 96+ Hours)
  • MS-DRG 208 (Respiratory System Diagnosis with Ventilator Support <96 Hours)
  • MS-DRG 222 (Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock with MCC)
  • MS-DRG 223 (Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/Shock without MCC)
  • MS-DRG 291 (Heart Failure & Shock with MCC)
  • MS-DRG 292 (Heart Failure & Shock with CC)
  • MS-DRG 293 (Heart Failure & Shock without CC/MCC)

As shown in the list above and in the chart below, the MS-DRGs identified also include those that describe invasive mechanical ventilation. The ICD-9-CM coding convention instructs the reporting of both types of mechanical ventilation when patients are admitted on noninvasive mechanical ventilation that subsequently requires invasive mechanical ventilation therapy.

The data demonstrate that, in certain MS-DRGs, for example, MS-DRGs 003, 004, and 222 that the cases with NIV primarily have shorter lengths of stay and lower average costs compared to all the cases in those MS-DRGs. Alternatively, the data for MS-DRGs 189, 190, 191, and 192 demonstrate that the cases with NIV have an increased length of stay and higher average costs, but a relatively low volume compared to all the cases in those MS-DRGs. Combining the current surgical and medical MS-DRGs into a single, new MS-DRG would include noninvasive mechanical ventilation cases with a wide range of costs for several indications with varying levels of severity. The average costs for these cases range from a low of $5,794 in MS-DRG 293 to a high of $95,940 in MS-DRG 003. In the proposed rule, we indicated that we believe the cases are more appropriately assigned and reimbursed in the MS-DRGs to which they are currently assigned.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 003—All cases18,22334.7$103,492
MS-DRG 003—Cases with code 93.90 without code 96.70, 96.71, or 96.725833.395,940
MS-DRG 004—All cases19,59925.7963,022
MS-DRG 004—Cases with code 93.90 without code 96.70, 96.71, or 96.7217025.4358,500
MS-DRG 189—All cases87,6685.368,317
MS-DRG 189—Cases with code 93.90 without code 96.70, 96.71, or 96.7222,0236.0710,383
MS-DRG 190—All cases130,7315.307,140
MS-DRG 190—Cases with code 93.90 without code 96.70, 96.71 or 96.728,4506.7811,207
MS-DRG 191—All cases135,8514.496,236
MS-DRG 191—Cases with code 93.90 without code 96.70, 96.71 or 96.724,5635.418,819
MS-DRG 192—All cases115,1533.524,621
MS-DRG 192—Cases with code 93.90 without code 96.70, 96.71 or 96.722,3344.256,803
MS-DRG 204—All cases21,0492.614,310
MS-DRG 204—Cases with code 93.90 without code 96.70, 96.71 or 96.722654.177,591
MS-DRG 207—All cases32,75214.6132,897
MS-DRG 207—Cases with code 93.90 without code 96.70, 96.71 or 96.72000
MS-DRG 208—All cases67,7246.9814,742
MS-DRG 208—Cases with code 93.90 without code 96.70, 96.71 or 96.72000
MS-DRG 222—All cases2,27911.9857,478
MS-DRG 222—Cases with code 93.90 without code 96.70, 96.71 or 96.725211.7955,011
MS-DRG 223—All cases3,2306.1741,754
MS-DRG 223—Cases with code 93.90 without code 96.70, 96.71 or 96.721911.0547,064
MS-DRG 291—All cases170,3996.059,585
MS-DRG 291—Cases with code 93.90 without code 96.70, 96.71 or 96.7214,2746.9512,320
MS-DRG 292—All cases220,0314.726,584
MS-DRG 292—Cases with code 93.90 without code 96.70, 96.71 or 96.725,1715.589,180
MS-DRG 293—All cases98,1343.204,410
MS-DRG 293—Cases with code 93.90 without code 96.70, 96.71 or 96.721,3813.435,794

As mentioned in the requestor's comments, and our clinical advisors agree, NIV encompasses a broad range of interventions and utilizes periods of time that range from a few hours to a few days of continuous chronic use. Resource requirements are vastly different for the various intended indications. For example, as also noted by the requestor, respiratory failure can have many forms. Our clinical advisors provided three subsets of patients as an example: Those that are given oxygen support, those that are given pressure (rate) support, and those that are intubated. There is overlap between the three subsets in that a patient may require one, two, or all three types of therapy and there are multiple options for any given patient. Our clinical advisors stated that these various subsets of patients can require significantly different resources. Lastly, respiratory failure reflects the severity of the diagnosis (it is a complication) while NIV is a therapeutic option. Unlike a major surgical intervention where the intervention creates morbidity, NIV merely reflects the severity of the underlying respiratory failure.

The requestor further noted in its comments that a significant number of patients who receive NIV fail this therapy and must be intubated and subsequently placed on a ventilator. However, those patients who require both noninvasive and invasive mechanical ventilation are already accounted for in the invasive mechanical ventilation MS-DRGs. Similar to patients with respiratory failure, patients with heart failure and shock have a comparable severity of illness where each condition reflects the severity of the diagnosis (it is a complication). Therefore, the cost is already reflected in the high resource expenditure estimates for MS-DRGs 222, 223, 291, 292, and 293, as are all other severity-correlated resource costs.

In conclusion, we indicated in the proposed rule that we believe that the data do not support the creation of a single MS-DRG to identify NIV cases. As stated previously, the average costs for the NIV cases range from a low of $5,794 in MS-DRG 293 to a high of $95,940 in MS-DRG 003. If created, this single MS-DRG would include patients with a wide range in average costs. We believe the cases are more appropriately captured in their current MS-DRGs. In addition to the clinical points raised by our clinical advisors and outlined above, the volume and length of stay data for cases where NIV was reported with the specified respiratory conditions further support their present MS-DRG assignments. Therefore, we did not propose to create a new MS-DRG for patients receiving NIV. We invited public comment on our proposal not to create a new MS-DRG for patients receiving NIV for FY 2012.

Comment: Several commenters agreed with CMS' proposal to not create a new MS-DRG for patients receiving NIV for FY 2012. One commenter did not have a position on whether or not a new MS-DRG should be created for patients receiving noninvasive mechanical ventilation. However, the commenter was concerned that reported hospital data may be incomplete. The commenter indicated that procedure code 93.90 (Noninvasive mechanical ventilation) is most likely underreported or not reported consistently because it is not required for reporting purposes. Another commenter stated that the data analysis performed on patients receiving NIV appeared to be supported by the current MS-DRG assignment. Therefore, the commenter agreed with the proposal not to create a new MS-DRG. This commenter also urged CMS to consider the Uniform Hospital Discharge Data Set (UHDDS) definition of a “reportable condition” in future analyses. This commenter noted that the UHDDS requires all significant procedures to be reported and that Medicare requires the reporting of any procedure that affects payment, whether or not it meets the definition of significant procedure. This commenter further noted that procedure code 93.90 is not considered significant by the UHDDS definition nor does it affect payment.

Response: We appreciate the commenters' support of our proposal to not create a new MS-DRG for patients receiving NIV for FY 2012. We agree with the commenters that procedure code 93.90 is likely not reported consistently and, therefore, the data included in evaluating the request may be incomplete. We encourage complete and accurate reporting of ICD-9-CM codes on each admission. As discussed in section II.G.13.b. of this final rule, we have expanded our ability to accept and process up to 25 diagnosis codes and 25 procedure codes with the implementation of 5010. We agree with the commenters who state that the current data do not support a new MS-DRG for patients receiving NIV.

We also agree with the commenter that NIV (procedure code 93.90) is not considered to be a significant procedure under UHDDS definitions and does not affect payment under Medicare policy. UHDDS definitions are used by hospitals to report inpatient data elements in a standardized manner. For further information regarding UHDDS data elements and their definitions, we refer readers to the July 31, 1985Federal Register(50 FR 31038 through 31040) and the Internet Web site at: http://www.ncvhs.hhs.gov/ncvhsr1.htm.

Comment: The organization that submitted the original request to create a new MS-DRG for NIV expressed appreciation to CMS for considering their request and for providing data that was unavailable to them at the time they submitted their original request. The commenter also acknowledged the potential for underreporting of NIV (procedure code 93.90). However, the commenter specifically asked to furtherrefine their original request based on the data that were displayed in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25818). The commenter suggested that CMS now limit consideration of a new MS-DRG for NIV to only the data that were displayed for 4 of the 14 MS-DRGS analyzed in response to their original request. The commenter asked CMS to now only focus on the data that was provided for the following MS-DRGs:

  • MS-DRG 189 (Pulmonary Edema & Respiratory Failure)
  • MS-DRG 190 (Chronic Obstructive Pulmonary Disease with MCC)
  • MS-DRG 191 (Chronic Obstructive Pulmonary Disease with CC)
  • MS-DRG 192 (Chronic Obstructive Pulmonary Disease without CC/MCC)

The commenter recommended that CMS utilize respiratory failure, pulmonary edema, and chronic obstructive pulmonary disease as diagnoses that, when present with NIV, define the structure of a new NIV MS-DRG.

Response: We acknowledge the commenter's request that we now consider a refined request that focuses on only 4 of the 14 MS-DRGs originally analyzed. However, due to time constraints, we were unable to conduct the necessary analysis for evaluation. We would need to perform a new and separate analysis with exact specifications that were not provided by the commenter in their modified request before we could make a final determination. For example, there are numerous ICD-9-CM codes that describe respiratory failure, pulmonary edema, and chronic obstructive pulmonary disease. The commenter did not specify the exact codes they believe would warrant this modified MS-DRG when reported with procedure code 93.90 (NIV) for us to conduct a thorough analysis in time to include our evaluation in this final rule.

Therefore, after consideration of public comments we received, we are finalizing our proposal to not create a new MS-DRG for NIV for FY 2012.

b. Debridement With Mechanical Ventilation Greater Than 96 Hours With Major Operating Room (O.R.) Procedure

We received a comment concerning the use of excisional debridement in cases with complications that lead to the need for extended mechanical ventilation. The commenter stated that patients undergoing procedures such as excisional debridement may also develop extensive complications such as respiratory failure and sepsis. The commenter indicated that these patients tend to use significant resources. The commenter stated that these cases are currently assigned to MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support 96+ Hours) or MS-DRG 870 (Septicemia with or Severe Sepsis with Mechanical Ventilation 96+ Hours). The commenter expressed a concern that the operating room (OR) procedure of the excisional debridement was not fully recognized through either of these two medical MS-DRGs. The commenter requested that a new MS-DRG be created that would include mechanical ventilation of greater than 96 hours with the presence of an additional major OR procedure.

We agree that patients with long-term mechanical ventilation greater than 96 hours and a major OR procedure utilize extensive resources. However, we point out that these patient cases are not currently assigned to MS-DRG 207 or MS-DRG 870 as the commenter stated. Many of these long-term mechanical ventilation patient cases are instead assigned to MS-DRG 003 (ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or PDX, Excluding Face, Mouth & Neck with Major Operating Room Procedure). Cases that require mechanical ventilation for greater than 96 hours, that have a tracheostomy performed, and that have a procedure on the major O.R. list (including excisional debridement) are assigned to MS-DRG 003. We specifically created MS-DRG 003 to capture these complicated patients on long-term mechanical ventilation who also have a major O.R. procedure. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we did not propose to create a second MS-DRG to capture these patients. We welcomed public comments on our proposal not to create a new MS-DRG for these patients for FY 2012.

Comment: Several commenters supported our proposal not to create a second MS-DRG to capture patients with mechanical ventilation of greater than 96 hours with the presence of an additional major OR procedure. One commenter stated that the limited data and documentation from the requestor for the creation of a second MS-DRG prohibited them from evaluating the need for this new MS-DRG.

Response: We agree with the commenters that CMS should not create a second MS-DRG to capture patients with mechanical ventilation of greater than 96 hours with the presence of an additional major OR procedure. MS-DRG 003 (ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or PDX, Excluding Face, Mouth & Neck with major Operating Room Procedure) appropriately captures these patients.

After consideration of the public comments we received, we are not creating a new MS-DRG to capture patients on mechanical ventilation of greater than 96 hours who also have an additional major OR procedure for FY 2012.

c. Autologous Bone Marrow Transplant

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), effective October 1, 2011, we deleted MS-DRG 009 (Bone Marrow Transplant) and created two new MS-DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 (Autologous Bone Marrow Transplant). We created new MS-DRGs 014 and 015 because of differences in costs associated with these procedures. During the comment period for the FY 2011 IPPS/LTCH PPS proposed rule, two commenters who supported the proposed reclassification of the bone marrow transplant MS-DRGs requested further refinement to account for severity of illness. At that time, we did not subdivide MS-DRG 014 and MS-DRG 015 based on severity of illness because they did not meet our criteria for subdivision (75 FR 50102).

As we outlined in our FY 2008 IPPS/LTCH PPS final rule with comment period (72 FR 47169), in designating an MS-DRG as one that would be subdivided into subgroups based on the presence of a CC or an MCC, we developed a set of criteria to facilitate our decision-making process. The original criteria were based on average charges; we now use average costs (FY 2007 IPPS final rule, 71 FR 47882). In order to warrant creation of a CC or an MCC subgroup within a base MS-DRG, the subgroup must meet all of the following five criteria:

  • A reduction in variance of cost of at least 3 percent.
  • At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
  • At least 500 cases are in the CC or MCC subgroup.
  • There is at least a 20-percent difference in average cost between subgroups.
  • There is a $2,000 difference in average cost between subgroups.

For the FY 2012 IPPS/LTCH PPS proposed rule, we examined FY 2010 MedPAR claims data for these newly created MS-DRGs, and based on these criteria, we identified MS-DRG 015 as a possible MS-DRG that would require further subdivision. MS-DRG 014 was not identified, as this MS-DRG did not meet the criteria stated above for possible subdivision. Autologous bonemarrow transplantation utilizes the patient's own bone marrow or stem cells in the treatment of certain cancers and bone marrow diseases. These procedures restore stem cells that have been destroyed either by chemotherapy and/or radiation treatment.

In our analysis, we found 1,338 total cases assigned to MS-DRG 015 with average costs of approximately $38,608 and an average length of stay of approximately 18.8 days. There were 1,092 cases that had a secondary diagnosis code reported on the claim that was designated as a CC or an MCC with average costs of approximately $40,974 and an average length of stay of approximately 19.7 days. There were 246 cases without a secondary diagnosis code reported on the claim that had a CC or an MCC designation with average cost of approximately $28,105 and an average length of stay of approximately 14.6 days. The following table illustrates our findings:

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 015—All cases1,33818.8$38,608
MS-DRG 015—Cases with MCC/CC1,09219.740,974
MS-DRG 015—Cases without MCC/CC24614.628,105

We found that the cases reported with a secondary diagnosis code of a CC or an MCC were more costly and had a longer average length of stay than both the overall cases assigned to MS-DRG 015 and the cases without a CC or an MCC. The cases without a CC or an MCC were less costly and had a shorter average length of stay than both the cases with a CC or an MCC and the overall cases assigned to that MS-DRG. Based on our analysis, all five criteria for a subgroup division were met, thereby supporting a 2-level severity split for MS-DRG 015. Therefore, for FY 2012, we proposed to delete MS-DRG 015 and create two new MS-DRGs:

  • Proposed MS-DRG 016 (Autologous Bone Marrow Transplant with MCC/CC); and
  • Proposed MS-DRG 017 (Autologous Bone Marrow Transplant without MCC/CC).

We invited public comment on our proposal to delete MS-DRG 015 and create two new MS-DRGs 016 and 017 for autologous bone marrow transplant for FY 2012.

Comment: Several commenters supported our proposed changes for a 2-level severity split for autologous bone marrow transplant cases. One commenter stated that it appreciated CMS' further refinement to account for severity of illness as it reflects current experience with transplant eligible patients who present with a range of comorbidities and other complicating factors.

Response: We appreciate the support of the commenters.

Comment: One commenter disagrees with our proposed refinement of MS-DRG 014 to account for severity of illness. The commenter contended that the recipient patient population for both autologous and allogeneic transplants is similar and that recognition of the variation in the patient population for both is warranted. The commenter requested a re-review of the cost variances for MS-DRG 014 because allogeneic transplant patients are often treated for similar comorbidities as autologous transplant patients prior to transplant and during post transplant care.

Response: As we outlined in the proposed rule (76 FR 25819), to warrant creation of a CC or MCC subgroup within a base MS-DRG, the subgroup must meet all of the five criteria. MS-DRG 014 did not meet the criteria for possible subdivision because at least 500 cases were not in the CC or MCC subgroup.

After consideration of the public comments we received, we are finalizing our proposal to delete MS-DRG 015 and to create two new MS-DRGs: MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC); and MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC). We note that we have amended the final titles of new MS-DRGs 015 and 016 to place “CC” before “MCC.”

2. MDC 1 (Diseases and Disorders of the Nervous System): Rechargeable Dual Array Deep Brain Stimulation System

We received a public comment in response to the FY 2011 IPPS/LTCH PPS proposed rule regarding the MS-DRG assignment for rechargeable dual array deep brain neurostimulators. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50128), we indicated that we considered this comment outside of the scope of the proposed rule as we did not propose any changes for these procedures for FY 2011. However, we addressed this issue in the FY 2012 IPPS/LTCH PPS proposed rule.

Deep brain stimulation is a surgical treatment that involves the implantation of a neurostimulator, used in the treatment of essential tremor, Parkinson's disease, dystonia, and chronic pain. The commenter recommended that CMS assign the combination of procedure codes representing rechargeable systems for deep brain stimulation therapy, procedure code 02.93 (Implantation or replacement of intracranial neurostimulator lead(s)) and procedure code 86.98 (Insertion or replacement of dual array rechargeable neurostimulator pulse generator) to MS-DRG 023 (Craniotomy with Major Device Implant/Acute Complex CNS PDX with MCC or Chemo Implant) and MS-DRG 024 (Craniotomy with Major Device Implant/Acute Complex CNS PDX without MCC).

The commenter stated that this recommendation would allow all full system dual array deep brain stimulation cases to be appropriately grouped to the same MS-DRGs. Currently, procedure codes 02.93 and 86.98 are assigned to MS-DRG 025 (Craniotomy and Endovascular Intracranial Procedures with MCC), MS-DRG 026 (Craniotomy and Endovascular Intracranial Procedures with CC), and MS-DRG 027 (Craniotomy and Endovascular Intracranial Procedures without CC/MCC), while the procedure codes for the nonrechargeable dual array systems, procedure codes 02.93 and 86.95 (Insertion or replacement of dual array neurostimulator pulse generator, not specified as rechargeable), are already assigned to MS-DRGs 023 and 024. The commenter stated that the procedures to implant the rechargeable and nonrechargeable dual array systems are similar clinically as well as comparable in resource utilization.

For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010 MedPAR data and found a total of 16 full system rechargeable dual array deep brain stimulation systems reported with procedure codes 02.93 and 86.98 assigned to MS-DRGs 025 through 027. We found one case assigned to MS-DRG 025 and one case assigned to MS-DRG026. The majority of the cases, 14, were assigned to MS-DRG 027, with average costs of approximately $23,870 and an average length of stay of approximately 2.2 days. We found that the deep brain stimulation cases assigned to MS-DRG 027 had higher average costs than the overall cases assigned to MS-DRG 027 of approximately $14,200. However, the average length of stay was shorter for these cases than the overall length of stay for MS-DRG 027 cases of approximately 3.7 days.

We also examined the data for the nonrechargeable dual array systems to assess the commenter's assumption that both the rechargeable and nonrechargeable dual array systems are similar in resource use. We found 155 total nonrechargeable dual array systems (procedure codes 02.93 and 86.95) assigned to MS-DRGs 023 and 024. There were 5 cases assigned to MS-DRG 023, with average costs of approximately $36,159 and an average length of stay of approximately 10 days. We found that the majority of the cases, 150, were assigned to MS-DRG 024, with average costs of approximately $25,855 and an average length of stay of approximately 2.2 days. We believe that these data support the commenter's statement that, for the majority of these cases, the resource use is similar for both systems.

For comparison purposes, if we proposed the changes that the commenter suggested, those deep brain stimulation cases currently assigned to MS-DRG 027 and the one case assigned to MS-DRG 026 (with average costs of approximately $27, 836) would be reassigned to MS-DRG 024. The average costs of approximately $23,870 of these deep brain stimulation cases assigned to MS-DRG 027 are similar to the overall average costs of approximately $23,249 for MS-DRG 024. The one case assigned to MS-DRG 025 (with average costs of approximately $29,361) would be reassigned to MS-DRG 023 (with average costs of approximately $34,168). The following table illustrates our findings:

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 023—All cases4,23811.8$34,168
MS-DRG 023—Cases with codes 02.93 and 86.95510.036,159
MS-DRG 024—All cases1,5927.623, 249
MS-DRG 024—Cases with codes 02.93 and 86.951502.225,855
MS-DRG 025—All cases11,50511.029,524
MS-DRG 025—Cases with codes 02.93 and 86.9812.029, 361
MS-DRG 026—All cases9,7827.019,125
MS-DRG 026—Cases with codes 02.93 and 86.9813.027,836
MS-DRG 027—All cases10,9363.714,200
MS-DRG 027—Cases with codes 02.93 and 86.98142.223,870

Based on our findings, in the proposed rule, we indicated that we believe that the data support reassigning the combination of procedure codes representing rechargeable systems for deep brain stimulation therapy, code 02.93 and code 86.98, to MS-DRGs 023 and 024. Our clinical advisors support this reassignment. Therefore, we proposed to assign rechargeable dual array systems for deep brain stimulation cases identified by reporting both procedure codes 02.93 and 86.98 to MS-DRGs 023 and 024 for FY 2012. We invited public comment on our proposal to assign these cases to MS-DRG 023 and 024 for FY 2012.

Comment: Several commenters supported our proposal to reassign rechargeable dual array deep brain stimulation cases.

Response: We appreciate the support of the commenters. As stated above, we believe that the assignment of these cases to MS-DRG 023 and 024 is appropriate.

After consideration of public comments we received, we are adopting as final our proposal to assign rechargeable dual array systems for deep brain stimulation cases identified by reporting both procedure codes 02.93 and 86.98 to MS-DRGs 023 and 024 for FY 2012.

3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and Throat): Skull Based Surgeries

We received a request from a commenter recommending that CMS reclassify skull-based surgical procedures that are currently assigned to MS-DRGs 135 and 136 (Sinus and Mastoid Procedures with CC/MCC and without CC/MCC, respectively) and reassign them to MS-DRGs 025, 026, and 027 (Craniotomy and Endovascular Intracranial Procedures with MCC, with CC, and without CC/MCC, respectively). The commenter stated that the current MS-DRG assignment does not reflect the resource utilization and technical complexity of these difficult procedures when performed for anterior skull base tumors.

Skull (or cranial) based surgery is performed for a variety of serious medical conditions including esthesioneuroblastomas, which are rare, malignant tumors that arise from the epithelium overlying the olfactory bulb; sinonasal melanomas, which are malignant melanomas that may develop in the mucosa of the nose and sinuses; and sinonasal undifferentiated carcinomas, which are rapidly growing malignant tumors arising in the nasal cavity and/or sinuses. These types of conditions are generally identified by the following ICD-9-CM diagnosis codes:

  • 160.0 (Malignant neoplasm of nasal cavities)
  • 160.1 (Malignant neoplasm of auditory tube, middle ear, and mastoid air cells)
  • 160.2 (Malignant neoplasm of maxillary sinus)
  • 160.3 (Malignant neoplasm of ethmoidal sinus)
  • 160.4 (Malignant neoplasm of frontal sinus)
  • 160.5 (Malignant neoplasm of sphenoidal sinus)
  • 160.8 (Malignant neoplasm of other accessory sinuses)
  • 160.9 (Malignant neoplasm of accessory sinus, unspecified)
  • 210.7 (Benign neoplasm of nasopharynx)
  • 212.0 (Benign neoplasm of nasal cavities, middle ear, and accessory sinuses)

According to the commenter, procedure code 22.63 (Ethmoidectomy) describes the type of surgery being performed for these patients and is currently assigned to MS-DRGs 135 and 136.

For the FY 2012 IPPS/LTCH PPS proposed rule, using the FY 2010 MedPAR file, we examined data oncases identified by procedure code 22.63 when reported with one of the above listed diagnosis codes in MS-DRGs 135 and 136. We found a total of 402 cases in MS-DRG 135 with an average length of stay of 6.30 days and average costs of $12,869. We found only 23 cases in MS-DRG 135 identified by procedure code 22.63 with one of the diagnosis codes listed above with an average length of stay of 3.96 days and average costs of $10,510. In MS-DRG 136, there were a total of 320 cases with an average length of stay of 2.36 days and average costs of $6,683. We found only 27 cases in MS-DRG 136 identified by procedure code 22.63 with one of the diagnosis codes listed above with an average length of stay of 2.04 days and average costs of $6,844. As shown in the table below, the cases reporting procedure code 22.63 in MS-DRGs 135 and 136 have a lower volume, a shorter length of stay, and primarily lower average costs compared to all cases in MS-DRGs 135 and 136. As we indicated in the proposed rule, the data demonstrated that these cases are appropriately assigned to their current MS-DRG classifications.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 135—All cases4026.30$12,869
MS— DRG 135—Cases with procedure code 22.63 and diagnosis code 160.0 through 160.9 or 210.7 or 212.0233.9610,510
MS-DRG 136—All cases3202.366,683
MS-DRG 136—Cases with procedure code 22.63 and diagnosis code 160.0 through 160.9 or 210.7 or 212.0272.046,844

We also analyzed claims data for MS-DRGs 25 through 27. We determined that if the cases identified by procedure code 22.63 were to be reassigned to MS-DRGs 25-27, they would be significantly overpaid. As shown in the table below, we found that the average costs for these MS-DRGs range from $14,200 to $29,524.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 025—All cases11,50510.95$29,524
MS-DRG 026—All cases9,7827.0019,125
MS-DRG 027—All cases10,9363.7114,200

In summary, we indicated in the proposed rule that the data did not support moving cases with procedure code 22.63 when reported with one of the previously listed diagnosis codes from MS-DRGs 135 and 136 to MS-DRGs 25, 26 and 27. We invited public comment on our proposal not to make any MS-DRG modifications for these codes for FY 2012.

Comment: Several commenters supported our proposal to not make any revisions to reclassify skull-based surgical procedures that are currently assigned to MS-DRGs 135 and 136 and reassign them to MS-DRGs 025, 026, and 027.

Response: We appreciate the commenters' support.

After consideration of the public comment we received, we are finalizing our proposal to not make any modifications for skull-based surgeries for FY 2012.

4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant

Procedure code 35.97 (Percutaneous mitral valve repair with implant) was created for use beginning October 1, 2010 (FY 2011) after the concept of a percutaneous valve repair was presented and approved at the February 2010 ICD-9-CM Coordination and Maintenance Committee Meeting. Procedure code 35.97 was created at that time to describe the MitraClip TM device and any other percutaneous mitral valve repair devices currently on the market. This procedure code is assigned to the following MS-DRGs: 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, respectively); 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC); 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC); 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC); and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC).

According to the Food and Drug Administration's (FDA's) terms of the clinical trial for MitraClip TM, the device is to be implanted in patients without any additional surgeries performed. Therefore, based on these terms, we believe that the most likely MS-DRG assignments would be MS-DRGs 250 and 251, as described above. However, because procedure code 35.97 has only been in use since October 1, 2010, there are no claims data in the most recent MedPAR update file with which to evaluate any alternative MS-DRG assignments. Therefore, we did not propose to make any MS-DRG changes for procedure code 35.97 for FY 2012. We proposed to keep procedure code 35.97 in its current MS-DRG assignments. We invited public comment on this proposal.

Comment: Several commenters addressed our proposal. One commenter supported our proposal not to make any MS-DRG changes in the current assignment of procedure code 35.97, but also recommended that CMS review the MS-DRG assignment for FY 2013 when more claims data become available. In addition, one commenter indicated that it “* * * has no objections to CMS' proposed changes to the MS-DRG classifications and the Medicare Code Editor, which seem reasonable, given the data and information provided.”

Response: We appreciate the commenters' support and suggestion.

After consideration of the public comments we received, we are adopting as final without modification ourproposal to keep procedure code 35.97 (Percutaneous mitral valve repair with implant) in its current MS-DRG assignments of 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, respectively); 246 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 247 (Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without MCC); 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with MCC or 4+ Vessels/Stents); 249 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent without MCC); 250 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI with MCC); and 251 (Percutaneous Cardiovascular Procedure without Coronary Artery Stent or AMI without MCC).

In addition, we plan to conduct a review of the MedPAR data for code 35.97 in our next annual IPPS update cycle (that is, for FY 2013) to determine if the MS-DRG assignments as listed above are the most appropriate MS-DRGs for this procedure.

b. Aneurysm Repair Procedure Codes

Thoracic aorta defects, such as aneurysm, dissection, or injury, are uncommon but serious conditions that may arise from a disease or an accident. Some patients can be medically managed but most are treated with surgery. Often these defects result in death if they are not diagnosed and treated promptly. Currently, there are two techniques used for repair of aortic defects; both are O.R. procedures performed in an inpatient hospital setting. These two procedures are described by ICD-9-CM procedure codes 38.45 (Resection of vessel with replacement, thoracic vessel) and 39.73 (Endovascular implantation of graft in thoracic aorta). Both procedure codes 38.45 and 39.73 are currently assigned to MS-DRGs 237 (Major Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair) and 238 (Major Cardiovascular Procedures without MCC).

We received a request that we consider the reassignment of procedure codes 38.45 and 39.73 within the MS-DRG structure by removing the procedure codes from MS-DRGs 237 and 238 and adding them to a more clinically coherent set of MS-DRGs reflecting higher resource consumption. The requestors believed that, based on their analysis of MedPAR claims data of MS-DRGs 237 and 238, the resource utilization of both the endovascular and open repairs of the abdominal and thoracic aortas are higher than the overall average resource utilization for the MS-DRGs to which these procedures are currently assigned. The requestors also believed that an unusually high number of cases probably fall into cost outlier status.

For the FY 2012 IPPS/LTCH PPS proposed rule, we reviewed the MedPAR claims data for these two procedure codes. Our findings are shown in the following two tables.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 237—All cases20,68010.03$34,268
MS-DRG 237—Cases with procedure code 39.731,8517.7341,033
MS-DRG 237—Cases without procedure code 39.7318,82910.2633,603
MS-DRG 238—All cases35,7054.0820,597
MS-DRG 238—Cases with procedure code 39.73000
MS-DRG 238—Cases without procedure code 39.7335,7054.0820,597
MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 237—All cases20,68010.03$34,268
MS-DRG 237—Cases with procedure code 38.4544813.2951,953
MS-DRG 237—Cases without procedure code 38.4520,2349.9633,878
MS-DRG 238—All cases35,7054.0820,597
MS-DRG 238—Cases with procedure code 38.454667.2930,219
MS-DRG 238—Cases without procedure code 38.4535,2394.0320,465

Our findings of the analysis of the cases with procedure code 39.73 showed that the average costs are substantially higher than those costs for the cases overall in both MS-DRGs 237 and 238. We found that the average length of stay for the 1,851 cases identified in MS-DRG 237 is somewhat lower at 7.73 days than the average length of stay of 10.26 days in cases not containing procedure code 39.73.

Our findings of the analysis of the cases with procedure code 38.45 showed that both the average costs and the average length of stay are considerably higher than the average costs and the average length of stay for those cases without procedure code 38.45.

In addition, we reviewed the cases in which both procedure codes 38.45 and 39.73 were documented during the same admission. As can be seen in the charts below, we found 22 cases in which both procedure codes 38.45 and 39.73 were reported. Therefore, the sum of the values in the next two charts below will differ from the charts above because the cases containing both procedure codes have been removed and the data have been reworked.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 237—All cases20,68010.03$34,268
MS-DRG 237—Cases with procedure code 39.73 and without procedure code 38.451,8297.6840,862
MS-DRG 237—Cases with procedure code 38.45 and without procedure code 39.7342413.3651,783
MS-DRG 238—All cases35,7054.0820,597
MS-DRG 238—Cases with procedure code 39.73 and without procedure code 38.45000
MS-DRG 238—Cases with procedure code 38.45 and without procedure code 39.734667.2930,219
MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 237—All cases20,68010.03$34,268
MS-DRG 237—Cases with procedure code 38.45 and with procedure code 39.732211.8655,243
MS-DRG 237—Cases without procedure code 38.45 or procedure code 39.7318,40510.1933,184
MS-DRG 238—All cases35,7054.0820,597
MS-DRG 238—Cases with procedure code 38.45 and with procedure code 39.73000
MS-DRG 238—Cases without procedure code 38.45 or procedure code 39.7335,2394.0320,465

We found in our analysis of the claims data for cases with both procedure codes 38.45 and 39.73 that the average costs are substantially higher than those costs for the cases overall in MS-DRG 237. In addition, we found that the average length of stay for the 22 cases with both procedure codes 38.45 and 39.73 is higher at 11.86 days than the average length of stay of 10.03 days for all cases in MS-DRG 237.

Our analysis of the claims data for the procedure codes in MDC 5 showed that procedure code 38.45 is also assigned to MS-DRGs 228 (Other Cardiothoracic Procedures with MCC), 229 (Other Cardiothoracic Procedures with CC), and 230 (Other Cardiothoracic Procedures without CC/MCC) when it occurs in combination with procedure code 38.44 (Resection of vessel with replacement, aorta, abdominal). Procedure code 39.73 is not assigned to MS-DRGs 228 through 230, and review of the data showed that there were no cases that had been reported in these MS-DRGs.

The table below shows our findings of the average costs and the average length of stay for procedure code 38.45 reported in combination with procedure code 38.44 in MS-DRGs 228 through 230 and the average costs and the average length of stay in all cases in MS-DRGs 228 through 230 when both procedure codes 38.45 and 38.44 are not assigned.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 228—All cases2,08413.79$49,488
MS-DRG 228—Cases with procedure code 38.45 and procedure code 38.4427615.1856,246
MS-DRG 228—Cases without procedure code 38.45 and without procedure code 38.441,80813.5848,456
MS-DRG 229—All cases2,3548.3131,148
MS-DRG 229—Cases with procedure code 38.45 and procedure code 38.4415710.6837,723
MS-DRG 229—Cases without procedure code 38.45 and without procedure code 38.442,1978.1430,678
MS-DRG 230—All cases6285.4524,236
MS-DRG-230—Cases with procedure code 38.45 and procedure code 38.44347.1827,054
MS-DRG 230—Cases without procedure code 38.45 and without procedure code 38.445945.3524,075

Our findings show that both the average length of stay and average costs are higher in those cases containing procedure code 38.45 than those cases without this procedure code in MS-DRGs 228 through 230.

We then analyzed the 1,851 cases containing procedure code 39.73 in MS-DRGs 237 and 238 and the 912 cases containing procedure code 38.45 in MS-DRGs 237 and 238 to determine if they would meet the established criteria for a 3-way severity of illness split. This criterion is described in section III.G.1.c. of this preamble. The chart below shows our findings, with MS-DRG 237 acting as a severity of illness proxy for all cases, as there were no cases in MS-DRG 238. In the chart, the extensions “-1,” “-2,” and “-3” correspond to severity levels, with “-1” representing cases with MCC, “-2” representing cases with CC, and “-3” representing cases without CC/MCC.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 237-1—All cases20,68010.03$34,268
MS-DRG 237-1—Cases with procedure code 39.7363712.1457,834
MS-DRG 237-1—Cases with procedure code 38.4544613.2951,954
MS-DRG 237-2—All cases17,3565.7322,083
MS-DRG 237-2—Cases with procedure code 39.736596.8938,673
MS-DRG 237-2—Cases with procedure code 38.453538.1431,480
MS-DRG 237-3—All cases18,3492.5219,183
MS-DRG 237-3—Cases with procedure code 39.735553.6527,993
MS-DRG 237-3—Cases with procedure code 38.451136.3026,280

Our next step was to analyze the claims data for the cases in the clinically coherent MS-DRGs to which we proposed to move these cases. These six MS-DRGs are: 216 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with MCC); 217 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization with CC); 218 (Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization without CC/MCC); 219 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with MCC), 220 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization with CC); and 221 (Cardiac Valve & Other Major Cardiothoracic Procedures without Cardiac Catheterization without CC/MCC). For the sake of the grouping algorithm, procedure codes 39.73 and 38.45 must also be added to MS-DRGs 216 through 219. However, if these codes are documented in cases in which a cardiac catheterization occurs, they will be “trumped” by those catheterizations. Therefore, when we reviewed the data in order to make length of stay and cost comparisons, we only used the three MS-DRGs to which procedure codes 39.73 and 38.45 would appear without cardiac catheterization; that is MS-DRGs 219, 220, and 221. Our findings describing these three MS-DRGs are displayed in the following chart:

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 21912,80512.76$51,399
MS-DRG 22015,9887.6534,270
MS-DRG 2214,0435.9028,974

Our evaluation of the severity levels in the cases containing procedure codes 39.73 and 38.45 using the proxy MS-DRGs 237-1, 237-2, and 237-3 compared to the claims data in the table above with MS-DRGs 219 through 221 demonstrates that the cases are similar in resource consumption. In addition, the cases are clinically coherent.

We indicated in the proposed rule that, by moving procedure code 38.45 to MS-DRGs 216 through 221, we did not believe that there is a need for combination codes 38.45 plus 38.44 to be specifically assigned to MS-DRGs 228, 229, and 230. Because MS-DRGs 216 through 221 are higher in the surgical hierarchy for MDC 5 than MS-DRGs 228 through 230, the result of the proposal would be that either procedure code 38.45 by itself or in combination with procedure code 38.44 will always be assigned to MS-DRGs 216 through 221. We indicated that when reported alone, under this policy, procedure code 38.44 would continue to be assigned to MS-DRGs 237 and 238, as it has been in the past.

Therefore, for FY 2012, we proposed to remove procedure codes 38.45 and 39.73 from MS-DRGs 237 and 238 and to add these codes to MS-DRGs 216, 217, 218, 219, 220, and 221 based on our findings of similar resource consumption and clinical coherence. To conform to this proposed change, we also proposed to revise the title of MS-DRG 237 (Major Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair) by removing the terms “or Thoracic Aortic Aneurysm Repair.” Therefore, the new proposed title of MS-DRG 237 was “Major Cardiovascular Procedures with MCC.” We invited public comment on these proposals.

Comment: Several commenters supported the proposed changes.

Response: We appreciate the commenters' support.

Therefore, as we proposed, we are adopting our proposed changes as final. In summary, we are removing procedure codes 38.45 and 39.73 from MS-DRGs 237 and 238 and adding these two codes to the following six MS-DRGs: 216; 217; 218; 219; 220; and 221. In addition, we are revising the title of MS-DRG 237 to read “Major Cardiovascular Procedures with MCC.” The title of MS-DRG 238 (Major Cardiovascular Procedures without MCC) will remain the same.

5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and Connective Tissue)
a. Artificial Discs

In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received a public comment that was outside of the scope of any proposal in that proposed rule. The commenter urged CMS to reassign procedure code 84.62 (Insertion of total spinal disc prosthesis, cervical) from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) into MS-DRGs 471 through 473 (Cervical Spinal Fusion with MCC, with CC, and without CC/MCC, respectively). In addition, the commenter requested that CMS reassign procedure code 84.65 (Insertion of total spinal disc prosthesis, lumbosacral) from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator) to MS-DRGs 459 and 460 (Spinal Fusion Except Cervical with MCC and without MCC, respectively). However, the commenter also provided an alternative option to reassigning the procedure codes to different MS-DRGs. The commenter suggested the creation of a new, separate MS-DRG for the two artificial disc procedures if reassignment to the fusion MS-DRGs was not feasible.

We refer the reader to the FY 2008 IPPS proposed rule and final rule with comment period (72 FR 24731 through 24735 and 47226 through 47232) for discussion on the comprehensive evaluation of all the spinal DRGs in the development of the MS-DRG classification system. The modifications made to the spinal DRGs for FY 2008 recognized the similar utilization of resources, differences in levels of severity, and the complexity of the services being performed on patients undergoing the various types of spinal procedures.

For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed FY 2010 MedPAR claims data for procedure codes 84.62 and 84.65 in MS-DRG 490 and compared those results to the claims data for MS-DRGs 459, 460, 471, 472, and 473. We found a total of 19,840 cases in MS-DRG 490 with an average length of stay of 4.24 days and average costs of $11,940. As displayed in the chart below, we found 97 cases reporting procedure code 84.62, with an average length of stay of 1.80 days and average costs of $13,194 in MS-DRG 490. We also found 35 cases reporting procedure code 84.65, with an average length of stay of 2.91 days and average costs of $20,753. While average costs for the artificial disc cases were slightly higher ($1,254 for procedure code 84.62 and $8,813 for procedure code 84.65) compared to the average cost for all cases in MS-DRG 490, the artificial disc cases were of extremely low volume and reflected shorter lengths of staycompared to all the cases in MS-DRG 490.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 459—All cases3,6508.92$40,218
MS-DRG 460—All cases60,8653.7525,268
MS-DRG 471—All cases2,6868.9229,837
MS-DRG 472—All cases8,5863.7818,494
MS-DRG 473—All cases24,3231.8013,775
MS-DRG 490—All cases19,8404.2411,940
MS-DRG 490—Cases with code 84.62971.8013,194
MS-DRG 490—Cases with code 84.65352.9120,753

We recognized the disparity in average costs for cases reporting the insertion of a cervical or lumbar artificial disc in MS-DRG 490 compared to all the cases in that MS-DRG. However, we did not believe this supports reassignment of procedure codes 84.62 and 84.65 to the MS-DRGs for spinal fusion as the commenter requested. Even with the disparity in costs, clinically, the insertion of an artificial disc is not a spinal fusion. Therefore, reassignment of the artificial disc cases to the fusion MS-DRGs would be clinically inappropriate. In addition, for certain Medicare populations, the insertion of an artificial disc is considered a noncovered procedure.

As stated earlier, the commenter also provided an alternative option to reassigning procedure codes 84.62 and 84.65. The commenter suggested the creation of a new, separate MS-DRG for the two artificial disc procedures if reassignment to the fusion MS-DRGs was not feasible. In our evaluation of the claims data and as shown above in the data chart, the artificial disc cases are of extremely low volume; therefore, we do not believe the findings warrant the creation of a separate MS-DRG.

We invited public comment on our proposal not to reassign procedure code 84.62 from MS-DRG 490 to MS-DRGs 471 through 473 and procedure code 84.65 from MS-DRG 490 to MS-DRGs 459 and 460. We also invited public comment on our proposal not to create a new, separate MS-DRG for artificial disc procedures (codes 84.62 and 84.65) for FY 2012.

Comment: Several commenters supported our proposal not to create a new MS-DRG for artificial disc procedures, as well as not to reassign the procedure codes for insertion of a cervical or lumbar artificial disc (codes 84.62 and 84.65) to the fusion MS-DRGs (459 and 460 and 471 through 473). One commenter agreed with our statement that the insertion of an artificial disc is not the same as a fusion and should not be included in the fusion MS-DRGs. Another commenter agreed that reassignment of the artificial discs to the fusion MS-DRGs does not appear to be a clinically appropriate classification despite comparative costs. This commenter believed that limitations in the data, such as the low volume of cases, may be due to artificial discs being a noncovered procedure for certain Medicare populations and recommended revisiting our analysis for a new separate MS-DRG if the coverage policy is revised in the future.

Response: We appreciate the commenters' support for our proposals. We also acknowledge the commenters recommendation to conduct further analysis for total disc replacement procedures should the coverage policy pertaining to certain Medicare populations be modified in the future.

Comment: One commenter expressed appreciation to CMS for reviewing the current MS-DRG assignment for total disc replacement (TDR) procedures involving the cervical and lumbar areas. However, the commenter disagreed with the proposed rule analysis, stating it was limited to only the MedPAR database. The commenter believed that information from two publicly available databases, the Healthcare Cost and Utilization Project (HCUP) database and the California Patient Discharge database, support modifications to the TDR procedures. According to the commenter, “CMS' current MS-DRG assignment and resulting reimbursement at thirty to fifty percent (30-50%) of fusion procedures is well below the average eighty-eight percent (88%) ratio of TDR to fusion charges observed in the two additional databases analyzed.”

The commenter acknowledged that procedure code 84.62 and procedure code 84.65 are currently assigned to MS-DRG 490, regardless of whether or not the patient has a CC or MCC. The commenter also acknowledged the evaluation of the spinal procedure MS-DRGs in the FY 2008 IPPS proposed and final rules (72 FR 24731 through 24735 and 47226 through 47232), respectively. However, according to the commenter, the MS-DRG assignment for TDR procedures requires a more recent and thorough evaluation.

The commenter provided a comparison of how TDR procedures differ from other procedures assigned to MS-DRG 490. The commenter also stated that TDR procedures are more complex than other procedures in the MS-DRG. For example, the commenter noted that MS-DRG 490 includes procedure codes 84.58 and 84.59, representing spinal disc devices such as the X-Stop, Coflex, Dynesys, and M-Brace which do not involve removal of a disc. The commenter also noted that procedure code 80.51 (Excision of intervertebral disc), which comprises only one aspect of the total surgery required for TDR, is assigned to the same MS-DRG. The commenter further noted that because the two procedures are in the same MS-DRG, the hospital payment is the same for both procedures.

In addition, the commenter included a comparison of TDR cases and fusion cases, noting that there appeared to be greater similarity in resource use between fusion and TDR procedures than between TDR and other procedures in MS-DRG 490. The commenter reported that TDR is an alternative treatment option to spinal fusion and that patients receiving TDR have the same diagnosis as those receiving spinal fusion. In terms of similarity, the commenter stated that during both a TDR and spinal fusion surgery, the affected disc is removed, allowing normal disc height to be restored by the use of an implant. In spinal fusion, stability of the spinal segment is accomplished by the use of an implant and instrumentation such as plates, rods or screws and use of bone graft promotes osseous fusion of the vertebrae. For TDR procedures, an implant that allows motion is inserted into the disc space. According to thecommenter, these factors demonstrate clinical homogeneity and resource utilization for both TDR and spinal fusion.

The commenter did not dispute our findings that TDR procedures have shorter lengths of stay and are higher in costs compared to other procedures within MS-DRG 490. The commenter also acknowledged that TDR procedures are low volume and represent a fraction of all the procedures assigned to the MS-DRG.

Response: We appreciate and acknowledge the commenter's provision of data related to the HCUP database and the California Patient Discharge database. However, we point out that the commenter failed to identify the data related to each specified type of artificial disc replacement procedure in its analysis. We do not consider the data to be reliable for purposes of determining MS-DRG reclassifications in the form provided, as the data do not identify the number of cases, average length of stay, or average costs associated with a cervical versus a lumbar disc replacement. Further, in its own submitted comments, the commenter notes that the data provided were based on charges, not costs. In addition, as stated in the FY 2012 IPPS proposed rule (76 FR 25800), in order for us to consider using particular non-MedPAR data, we must have sufficient time to evaluate and test the data. This allows us time to test the data and make a preliminary assessment as to the feasibility of using the data. We evaluate patient care costs using average charges and lengths of stay as proxies for costs and rely on the judgment of our medical advisors to decide whether patients are clinically distinct or similar to other patients in the MS-DRG. We also consider variations and whether observed average differences are consistent across patients or attributable to cases that were extreme in terms of charges, length of stay, or both. Lastly, we consider the number of patients who will have a given set of characteristics and generally prefer not to create a new MS-DRG unless it would include a substantial number of cases.

In response to the commenter's comparison of how TDR procedures differ from other procedures in MS-DRG 490, we point out that procedure code 84.58 (Implantation of interspinous process decompression device), which previously identified the X-Stop device, was deleted effective October 1, 2007 (FY 2008). In addition, the other spinal disc devices that were noted by the commenter (Coflex, Dynesys, and M-Brace) were reassigned from procedure code 84.59 (Insertion of other spinal devices) to unique codes that were created in response to industry requests to describe a newer category of devices identified as motion preserving technologies. This new procedure code category, 84.8 (Insertion, replacement and revision of posterior spinal motion preservation device(s)), also became effective as of October 1, 2007 (FY 2008). As discussed above, the commenter recommended that CMS conduct a more recent and thorough evaluation of the spinal procedures in MS-DRG 490. However, in its own submitted comments, the commenter referred to outdated, deleted codes for its comparison to TDR.

With regard to clinical homogeneity and resource utilization, spinal fusion, TDR and a subset of the motion preserving technologies utilizing implant devices that allow motion in the spinal column were discussed extensively as noted above in the FY 2008 IPPS proposed rule and final rule with comment period (72 FR 24731 through 24735 and 47226 through 47232), respectively.

We will continue to evaluate the MS-DRGs on an annual basis and to respond to requests for code reassignments and MS-DRG reclassifications. We performed an analysis of the cervical and lumbar artificial disc replacement procedures in comparison to the fusion MS-DRGs in response to the commenter's request, as described above. Our data did not support reassignment of the artificial disc replacement codes, nor did our clinical advisors agree that these procedures are clinically coherent to be grouped in the same MS-DRGs. In addition, the data did not support the creation of a new, separate MS-DRG for total disc replacement procedures.

As mentioned previously, we performed a comprehensive analysis of all the spinal DRGs in our FY 2008 rulemaking process and we recognized the costs of procedures involving insertion of a disc device. As a result, we modified MS-DRG 490 (the higher severity level) to include those procedures with disc devices. The data analysis conducted at that time supported that modification.

We will continue to monitor the resource utilization of procedure codes 84.62 and 84.65 to determine if future MS-DRG reassignments are warranted.

After consideration of the public comments we received, we are finalizing our proposal to not create a new, separate MS-DRG for cervical or lumbar total disc replacement procedures and to not reassign procedure code 84.62 from MS-DRG 490 to MS-DRGs 471 through 473 and procedure code 84.65 from MS-DRG 490 to MS-DRGs 459 and 460 for FY 2012.

b. Major Joint Replacement or Reattachment of Lower Extremities

We received a request to add an additional severity level for MS-DRG 469 (Major Joint Replacement or Reattachment of Lower Extremity with MCC) and MS-DRG 470 Major Joint Replacement or Reattachment of Lower Extremity without MCC). For the FY 2012 IPPS/LTCH PPS proposed rule, we examined FY 2010 MedPAR claims data to determine if we could subdivide the base MS-DRG into three severity levels: with MCC, with CC, and without CC/MCC. We applied the criteria used in the development of the MS-DRGs included in the FY 2008 IPPS final rule with comment period (72 FR 47169). We refer readers to this final rule with comment period for a complete description of these criteria. As discussed earlier, the original criteria were based on average charges. However, subsequent to the FY 2007 IPPS final rule (71 FR 47882), we now use average costs. The five criteria using costs are listed below. In order to warrant creation of a CC or an MCC subgroup within a base MS-DRG, the subgroup must meet all of the following five criteria:

  • A reduction in variance of costs of at least 3 percent.
  • At least 5 percent of the patients in the MS-DRG fall within the CC or MCC subgroup.
  • At least 500 cases are in the CC or MCC subgroup.
  • There is at least a 20-percent difference in average costs between subgroups.
  • There is a $2,000 difference in average costs between subgroups

The following table shows our determination of the number of cases and average costs by MCC, CC, and non-CC levels.

MS-DRGs 469 and 470Number of casesAverage length of stayAverage costs
Cases with MCC25,7177.72$21,016
Cases with CC179,1163.9914,233
Cases without CC/MCC220,7393.2113,250
Total425,5723.814,133

We determined that these cases do not meet our five criteria for adding a new severity level. The cases failed to meet criterion four (requiring at least a 20-percent difference in average costs between subgroups) and criterion five (requiring a $2,000 difference in average costs between subgroups). Therefore, we did not propose the addition of a new severity level for the base MS-DRG. Instead, we proposed to maintain the two existing severity levels for MS-DRGs 469 and 470. We welcomed public comments on our proposal not to add an additional severity level to MS-DRGs 469 and 470.

Comment: Several commenters supported our proposal to maintain the two existing severity levels for MS-DRGs 469 and 470 and not to add a third severity level. The commenters stated that the proposal seemed reasonable, given the data and information provided.

One commenter opposed our proposal. The commenter acknowledged the five criteria used to evaluate the establishment of a new severity level and the fact that this set of MS-DRGs did not meet the criterion requiring at least a 20-percent difference in average costs between subgroups or the criterion requiring a $2,000 difference in average costs between subgroups. However, the commenter stated that the large number of “with CC” cases that are currently classified in the “without CC/MCC” group places an unfair burden on providers who treat these patients and presents a distorted picture of the actual severity level of cases assigned to those providers. The commenter believed that adding an additional severity level to MS-DRGs 469 and 470 would better identify those conditions that lead to higher severity of illness and resource use relative to the average Medicare patient.

Another commenter opposed our proposal of maintaining the current two severity levels. The commenter stated that while the data appear to show that there is not a significant average cost difference between cases without CC/MCC compared to cases with CC, the commenter believed the data are biased. The commenter believed that diagnoses that do not affect DRG assignment are less likely to be reported on claims. The commenter speculated that it was reasonable to assume that, for cases assigned to these MS-DRGs, complications and comorbidities are underreported, as hospitals know that coding complications and comorbidities do not result in higher reimbursement. The commenter stated that a more reasonable approach would be to establish a third severity level for major joint replacement, with the intent of analyzing the data over the next 2 years to determine whether this was an appropriate MS-DRG modification. The commenter stated that the fact that “Revision of a Hip or Knee Replacement” has three levels strongly suggests that three levels would be appropriate for major joint replacement also.

Response: We agree with the commenters' statements that the data analysis shows that two of the five established criteria for creating a new severity level were not met. The cases failed to meet criterion two requiring at least a 20-percent difference in average costs between subgroups and criterion five requiring a $2,000 difference in average costs between subgroups. The criteria were developed to evaluate the need for severity levels across all MS-DRGs. We applied the criteria used in the development of the MS-DRGs included in the FY 2008 IPPS final rule with comment period (72 FR 47169). We refer readers to that final rule with comment period for a complete description of these criteria. As discussed earlier, the original criteria were based on average charges. However, subsequent to the FY 2007 IPPS final rule (71 FR 47882), we now use average costs. We believe it is important to apply these criteria consistently as requests are evaluated to create new severity levels. The cases in MS-DRGs 469 and 470 failed to meet the five criteria for adding a new severity level. We agree with the commenters who supported our proposal to maintain the two existing severity levels for MS-DRGs 469 and 470 and not creating a third severity level.

We disagree with the commenters who stated that CMS should ignore the criteria and add the additional severity level. One commenter suggested that we could retroactively review this new severity level by examining claims data 2 years after the update is made. We believe it is inappropriate to make an exception to the severity level criteria based on an assumption that hospitals may be under reporting secondary diagnoses that are on the CC list for certain types of cases. We encourage hospitals to code and report accurately. We will continue to review data to determine if additional severity levels are needed for specific MS-DRGs based on our published criteria. We do not believe it is appropriate to make exceptions for certain MS-DRGs.

After consideration of the public comments we received, as we proposed, we are maintaining MS-DRGs 469 and 470 with the current two severity levels for FY 2012.

c. Combined Anterior/Posterior Spinal Fusion

A manufacturer requested that CMS reassign spinal fusion cases utilizing the AxiaLIF technology from MS-DRGs 459 and 460 (Spinal Fusion Except Cervical with MCC and without MCC, respectively) to MS-DRGs 453, 454, and 455 (Combined Anterior/Posterior Spinal Fusion with MCC, with CC, and without CC/MCC, respectively). The commenter stated that an anterior lumbar interbody spinal fusion performed with a lateral approach, the extreme lateral interbody fusion (XLIF®), with posterior spinal fixation, can report two codes resulting in assignment to the combined fusion MS-DRGs. The commenter also stated that the AxiaLIF technology, which is also utilized in an anterior lumbar interbody spinal fusion and uses a pre-sacral approach, can only report one code, resulting in assignment to the single fusion MS-DRGs. The commenter expressed concern that the payment incentives are not properly aligned for the recently available minimally invasive spinal fusion technologies. The commenter compared the XLIF® to the AxiaLIF and urged CMS to consider the AxiaLIF technology similar to the XLIF® for purposes of MS-DRG assignment.

Spinal fusion is a surgical procedure that joins two or more vertebrae by the use of bone graft (or bone graft substitute), with the goal of maintainingalignment, providing stability, decreasing pain, and restoring the function of the spinal nerves. Routinely, a spinal fusion also utilizes internal fixation devices (instrumentation) to assist in stabilizing the spine. These fixation devices may include pedicle screws, cages, rods, or plates. Effective October 1, 2010, ICD-9-CM procedure code 81.06 (Lumbar and lumbosacral fusion of the anterior column, anterior technique) describes the XLIF® procedure, and code 81.08 (Lumbar and lumbosacral fusion of the anterior column, posterior technique) describes the AxiaLIF technology.

The spinal fusion codes and their corresponding MS-DRG assignment include the use of bone graft and internal fixation. The requestor's comment regarding the assignment of one procedure code for one technology versus assigning two procedure codes for another technology indicates that the commenter may not fully understand the MS-DRG GROUPER logic for spinal fusions. For example, if an anterior lumbar interbody fusion is performed and posterior spinal fixation (or instrumentation) is also utilized, this requires one code and results in a single fusion MS-DRG assignment. However, if a posterior spinal fusion (procedure code 81.07 (Lumbar and lumbosacral fusion of the posterior column, posterior technique) was performed in addition to an anterior fusion, for example, the XLIF® procedure (procedure code 81.06), that scenario would necessitate the assignment of both codes, resulting in assignment to the combined spinal fusion MS-DRGs (453, 454, or 455). MS-DRGs 453, 454, and 455 were created to capture patients who have both an anterior and posterior fusion. We believe the requestor may have confused the terms “fixation” and “fusion” for MS-DRG assignment in its request.

For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed the FY 2010 MedPAR data to evaluate claims reporting procedure codes 81.06, 81.07, and 81.08 in MS-DRGs 456 through 458 (Spinal Fusion Except Cervical with Spinal Curvature/Malignancy/Infection or 9+ Fusions with MCC, with CC and without CC/MCC, respectively) and MS-DRGs 459 and 460. We found a total of 1,115 cases in MS-DRG 456, with an average length of stay of 13.14 days and average costs of $63,856. We found 278 cases reporting procedure code 81.08, with an average length of stay of 12.04 days and average costs of $56,585. Similar results can be seen for procedure code 81.08 in the remaining MS-DRGs as shown in the chart below in terms of volume, length of stay, and average cost. Clearly, the data demonstrate that the AxiaLIF technology (procedure code 81.08) is appropriately assigned to its current MS-DRG assignments, as is the XLIF® procedure (procedure code 81.06).

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 456—All cases1,11513.14$63,856
MS-DRG 456—Cases with code 81.065414.3752,392
MS-DRG 456—Cases with code 81.072212.3246,828
MS-DRG 456—Cases with code 81.0827812.0456,585
MS-DRG 457—All cases3,0796.7441,500
MS-DRG 457—Cases with code 81.061196.4236,468
MS-DRG 457—Cases with code 81.07986.4936,532
MS-DRG 457—Cases with code 81.081,1945.7335,272
MS-DRG 458—All cases1,3893.9132,946
MS-DRG 458—Cases with code 81.061153.4929,089
MS-DRG 458—Cases with code 81.07763.1630,551
MS-DRG 458—Cases with code 81.088273.6030,570
MS-DRG 459—All cases3,6508.9240,218
MS-DRG 459—Cases with code 81.061649.1240,150
MS-DRG 459—Cases with code 81.071658.6537,970
MS-DRG 459—Cases with code 81.082,4688.2538,010
MS-DRG 460—All cases60,8653.7525,268
MS-DRG 460—Cases with code 81.062,6813.2726,464
MS-DRG 460—Cases with code 81.073,7093.6723,334
MS-DRG 460—Cases with code 81.0846,5653.6624,571

We also analyzed data for combinations of the spinal fusion codes that result in assignment to MS-DRGs 453, 454, and 455. We evaluated the following combinations:

  • 81.06 (Lumbar and lumbosacral fusion of the anterior column, anterior technique) and 81.07 (Lumbar and lumbosacral fusion of the posterior column, posterior technique).
  • 81.06 (Lumbar and lumbosacral fusion of the anterior column, anterior technique) and 81.08 (Lumbar and lumbosacral fusion of the anterior column, posterior technique).

We further analyzed data with the following combination of spinal fusion codes in MS-DRGs 456, 457, and 458 and MS-DRGs 459 and 460:

  • 81.07 (Lumbar and lumbosacral fusion of the posterior column, posterior technique) and 81.08 (Lumbar and lumbosacral fusion of the anterior column, posterior technique).

The chart below shows the results of the data analysis for the combination of procedure codes listed above where an anterior and posterior spinal fusion was performed in the same episode of care. There were a total of 1,190 cases in MS-DRG 453, with an average length of stay of 13.08 days and average costs of $71,693. The cases reporting the combination of procedure codes 81.06 and 81.08 in this same MS-DRG totaled 431, with an average length of stay of 11.59 days and average costs of $69,859. Results for the procedure code combination (81.06 and 81.08) in MS-DRGs 454 and 455 with regard to volume of cases, length of stay, and average costs data also support that these spinal fusion procedure code combinations are appropriately placed in their current MS-DRG assignments. Likewise, for MS-DRGs 456, 457, and 458, the data support that the spinal fusion procedure code combinations of 81.07 and 81.08 are appropriately placed in their current MS-DRG assignments. There were a total of 1,115 cases in MS-DRG 456 with an average length of stay of 13.14 days and averagecosts of $68,856. The cases reporting the combination of procedure codes 81.07 and 81.08 in this same MS-DRG totaled 54, with an average length of stay of 14.37 days and average costs of $52,392. Results for the procedure code combination (81.07 and 81.08) in MS-DRGs 457 and 458 with regard to volume of cases and average length of stay were lower compared to all the cases in those two MS-DRGs. While the data show higher average costs for the procedure code combination of 81.07 and 81.08 in MS-DRGs 457 and 458, as stated previously, the volume was extremely low.

MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 453—All cases1,19013.08$71,693
MS-DRG 453—Cases with codes 81.06 and 81.07814.00109,089
MS-DRG 453—Cases with codes 81.06 and 81.0843111.5969,859
MS-DRG 454—All cases3,0526.3848,311
MS-DRG 454—Cases with codes 81.06 and 81.07476.8360,743
MS-DRG 454—Cases with codes 81.06 and 81.081,8255.7147,144
MS-DRG 455—All cases2,7473.6337,378
MS-DRG 455—Cases with codes 81.06 and 81.07404.2847,794
MS-DRG 455—Cases with codes 81.06 and 81.082,0533.4337,793
MS-DRG 456—All cases1,11513.1463,856
MS-DRG 456—Cases with codes 81.07 and 81.085414.3752,392
MS-DRG 457—All cases3,0796.7441,500
MS-DRG 457—Cases with codes 81.07 and 81.08295.9760,820
MS-DRG 458—All cases1,3893.9132,946
MS-DRG 458—Cases with code 81.07 and 81.08233.2251,942

As the focus of the analysis was to evaluate procedure code 81.08 in comparison to procedure code 81.06, we believe the AxiaLIF technology (procedure code 81.08) is grouped appropriately in its current MS-DRG assignments, as is the XLIF® procedure (procedure code 81.06). The volume, length of stay, and cost data analyzed demonstrate that the complexity of services and resources utilized for each of these technologies are properly accounted for in their respective MS-DRG assignments. Therefore, the data did not support making changes for procedure code 81.08. As a result, we did not propose to reassign cases reporting this procedure code to the combined fusion MS-DRGs. We invited public comment on our proposal to not reassign procedure code 81.08 from MS-DRGs 456 through 460 to MS-DRGs 453 through 455 for FY 2012.

Comment: Several commenters supported our proposal to not reassign procedure code 81.08 to MS-DRGs 453 through 455.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to not reassign procedure code 81.08 to MS-DRGs 453 through 455.

6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue, and Breast): Excisional Debridement of Wound, Infection, or Burn

We received a request that we remove procedure code 86.22 (Excisional debridement of wound, infection, or burn) from the list of codes considered to be O.R. procedures. The commenter stated that many inpatient excisional debridements are performed in a patient's room instead of in an operating room. The commenter believed that the original assignment of procedure code 86.22 to the O.R. list served to help reflect the resource intensity required by a patient with wounds and ulcers that required an excisional debridement. The commenter stated that, by doing so, the code served as a proxy for severity of illness in the original CMS DRGs prior to the implementation of MS-DRGs in FY 2008. The commenter stated that the creation of the most serious pressure ulcer codes for stage 3 and stage 4 pressure ulcers (codes 707.23 and 707.24) allows these conditions to be classified as MCCs. Therefore, the commenter stated that the need to use procedure code 86.22 to capture severity of illness was no longer needed. The commenter also stated that procedure code 86.22 is a non-O.R. code under the APR-DRGs and does not affect the DRG assignment. The commenter requested that procedure code 86.22 be changed from an O.R. procedure code to a non-O.R. procedure code.

As the commenter stated, excisional debridements are currently captured in procedure code 86.22. Procedure code 88.22 is classified as an O.R. procedure in the current MS-DRGs and, therefore, leads to a surgical MS-DRG assignment. We examined MedPAR claims data on all excisional debridement cases and found that these debridement cases use appreciably fewer resources than other cases in their current surgical DRGs. However, for the proposed rule, we determined that if we were to classify debridement cases as non-O.R. cases and assign them to medical DRGs, we would significantly underpay these cases. The following chart shows differences in average costs for all excisional debridement cases compared to other cases within their current MS-DRG and compared to medical DRGs to which the patients would be assigned if the procedure were reclassified as a non-O.R. procedure.

Procedure codeAll cases with no other OR procedureAverage cost(A)Average costs in surgical DRGs to which thepatients areassigned(B)Average costs in medical DRGs to which thepatients would be assigned(C)
86.2232,152$12,427$17,332$8,070

The chart illustrates that when debridement is the only O.R. procedure, it is assigned to MS-DRGs that have an average cost that is approximately $5,000 more than the actual cost of the debridement ($12,427 versus $17,332). Conversely, if the debridement is made a non-O.R. code, it would, on average, be assigned to MS-DRGs that have an average cost that is approximately $4,000 less than the actual cost of the debridement ($8,070 versus $12,427). Therefore, we believe it would be inappropriate to propose to classify these procedures as a non-O.R. procedure.

For the proposed rule, we explored alternative approaches to classifying procedure code 86.22 as a non-O.R. procedure. We evaluated the possibility of removing excisional debridements from their current MS-DRG assignments within the following skin-related MS-DRGs, where they are combined with skin grafts, and creating a new set of debridement MS-DRGs. The current MS-DRGs that combine skin grafts and debridements into the same MS-DRGs are as follows:

  • MS-DRGs 573 through 575 (Skin Graft &/or Debridement for Skin Ulcer or Cellulitis with MCC, with CC, and without CC/MCC, respectively).
  • MS-DRGs 576 through 578 (Skin Graft &/or Debridement Except for Skin Ulcer or Cellulitis with MCC, with CC, and without CC/MCC, respectively).

We analyzed MedPAR claims data on the severity level of graft cases without any debridements in these six MS-DRGs. Our findings are shown in the chart below.

Skin Grafts Without Debridements
MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRGs 573-575—Cases with severity level of MCC75114.56$23,975
MS-DRGs 573-575—Cases with severity level of CC1,72010.1614.869
MS-DRGs 573-575—Cases with severity level of without CC/MCC5405.368,469
MS-DRGs 576-578—Cases with severity level of MCC33510.2822,996
MS-DRGs 576-578—Cases with severity level of CC1,4825.2811,299
MS-DRGs 576-578—Cases with severity level of without CC/MCC1,8493.016,986

We compared these data to a proposed new set of skin-related MS-DRGs that would include only debridements. The results of the findings of the severity levels of debridements without skin grafts in these six MS-DRGs are shown in the chart below.

Debridements Without Skin Grafts
MS-DRGNumber of casesAverage length of stayAverage costs
MS-DRG 573-575—Cases with severity level of MCC3,17711.73$18,381
MS-DRG 573-575—Cases with severity level of CC6,6497.6710,730
MS-DRG 573-575—Cases with severity level of without CC/MCC2,5554.946,372
MS-DRG 576-578—Cases with severity level of MCC27111.5919,429
MS-DRG 576-578—Cases with severity level of CC6387.6111,913
MS-DRG 576-578—Cases with severity level of without CC/MCC2854.456,928

Our findings indicate that the graft procedure cases have higher average costs than the excisional debridement cases. The average costs for the excisional debridement cases in MS-DRGs 573 through 575 compared to the debridement cases in MS-DRGs 576 through 578 are very similar. We believe that the data support creating a single set of skin-related excisional debridement MS-DRGs composed of cases previously captured in MS-DRGs 573 through 575 as well as MS-DRGs 576 through 578. The following chart illustrates those combined average costs.

Excisional Debridements From Ms-Drgs 573 Through 578 Split on Severity Level
MS-DRGs 573—578Number of casesAverage length of stayAverage costs
Combined Excisional Debridement Cases with Severity Level of MCC3,44811.71$18,463
Combined Excisional Debridement Cases with Severity Level of CC7,2877.7610,833
Combined Excisional Debridement Cases with Severity Level of without CC/MCC2,8404.896,428

As we stated in the proposed rule, we believe that the data support separating skin graft procedures from excisional debridements by creating a new set of MS-DRGs. This would result in more accurate payment for both skin grafts and debridement. Therefore, we proposed to remove excisional debridements (procedure code 86.22) from their current MS-DRG assignments within MS-DRGs 573 through 578 for skin grafts and assign them to new excisional debridement MS-DRGs. We proposed to maintain MS-DRGs 573 through 578 for skin grafts. The following list describes the proposed new and revised MS-DRG titles:

Proposed new MS-DRGs based on procedure code 86.22:

  • Proposed MS-DRG 570 (Skin Debridement with MCC)
  • Proposed MS-DRG 571 (Skin debridement with CC)
  • Proposed MS-DRG 572 (Skin Debridement without CC/MCC)

Proposed Revised MS-DRGs based on codes currently assigned to MS-DRGs 573 through 578, excluding procedure code 86.22:

  • Proposed revised MS-DRG 573 (Skin Graft for Skin Ulcer or Cellulitis with MCC)
  • Proposed revised MS-DRG 574 (Skin Graft for Skin Ulcer or Cellulitis with CC)
  • Proposed revised MS-DRG 575 (Skin Graft for Skin Ulcer or Cellulitis without CC/MCC)
  • Proposed revised MS-DRG 576 (Skin Graft Except for Skin Ulcer or Cellulitis with MCC)
  • Proposed revised MS-DRG 577 (Skin Graft except for Skin Ulcer or Cellulitis with CC)
  • Proposed revised MS-DRG 578 (Skin Graft Except for Skin Ulcer or Cellulitis without CC/MCC)

In the proposed rule, we invited public comments on our proposal for FY 2012 to create three new debridement MS-DRGs 570, 571, and 572 for skin debridement and to revise MS-DRGs 573 through 578 to include skin grafts only, as indicated above.

Comment: Several commenters supported our proposal to create three new debridement MS-DRGs, MS-DRGs 570, 571, and 572 for skin debridement and to revise MS-DRGs 573 through 578 to include skin grafts only, as described above. One commenter stated that the proposal seemed reasonable, given the data and the information provided. Another commenter who supported this MS-DRG modification expressed appreciation for the change because the relative weights better reflect resource intensive cases with the proposed new and revised MS-DRGs 570 through 578.

One commenter supported our recommendation not to remove the code for excisional debridement from the O.R. list. However, the commenter opposed removing excisional debridements (procedure code 86.22) from their current MS-DRG assignments within MS-DRGs 573 through 578 for skin grafts and assigning them to new excisional debridement MS-DRGs and maintaining MS-DRGs 573 through 578 for skin grafts. The commenter stated that excisional debridement is not exclusively a bedside procedure. Rather, the commenter noted, it can be performed in or out of the operation room, based on the judgment of the surgeon. The commenter stated that, in many instances, this procedure cannot be performed at the bedside due to variables such as patient anxiety, the size of the wound, bleeding risk, among others. The commenter stated that removing excisional debridements from their current MS-DRG assignments could harm many hospitals that perform procedures such as split thickness skin grafts for extensive wound or burns. The commenter recommended that, instead of removing excisional debridements from the current MS-DRG assignments, CMS create a separate ICD-9-CM code for debridement that is performed in the operating room due to anesthesia, equipment, or monitoring requirements.

Another commenter opposed the creation of separate debridement and skin graft MS-DRGs out of concern that this would create significant confusion among hospital coders. The commenter stated that skin grafts and skin debridements are often performed on the same patient. The commenter stated that the current descriptions of MS-DRGs 573 through 575 (Skin Graft and/or Debridement for Skin Ulcer or Cellulitis with MCC, with CC, and without CC/MCC, respectively) and MS-DRGs 576 through 578 (Skin Graft and/or Debridement Except for Skin Ulcer or Cellulitis with MCC, with CC, and without CC/MCC, respectively) appropriately describe the interrelationship between skin grafts and debridement. The commenter expressed concern that de-linking this relationship would lead to confusion for coders.

Response: We agree with the commenters that data support the creation of three new debridement MS-DRGs 570, 571, and 572 for skin debridement and the revision of MS-DRGs 573 through 578 to include skin grafts only.

We disagree with the commenter who recommends that, instead of creating separate MS-DRGs for skin debridements and skin grafts, CMS pursue the creation of a new skin debridement code that would be limited to those procedures performed in an operating room setting. ICD-9-CM codes are not currently subdivided based on the location of the procedure such as in an operating room, endoscopy room, catheterization room, treatment room, or patient room. ICD-9-CM codes are assigned based on the procedure performed, not the location in which the procedure was performed. Furthermore, we have just begun a period of a partial freeze of both ICD-9-CM and ICD-10 codes. This partial freeze is discussed in section II.G.13.b. of this preamble. We do not believe it is appropriate to postpone refinements to the MS-DRGs until a code update could be made and data on cases reported with the new code could be evaluated. We believe the current data support this proposed modification. However, as stated earlier, ICD-9-CM codes do not indicate the setting in which a procedure is performed. Therefore, it is unlikely that such a code would be created even if we were not in a period of a code freeze.

We also disagree with the commenter who stated that creating separate MS-DRGs for skin debridements and skin grafts will create confusion for coders. We believe that coders clearly understand the difference between skin debridements and skin grafts. If both are performed, then coders code and report both procedures. The fact that the MS-DRGs would be modified would not affect the way in which coders assign codes for skin debridements and skin grafts. We also note that organizations representing coders, including the American Health Information Management Association, supported this proposed MS-DRG modification. These organizations did not express concerns about any possible confusion for coders.

After consideration of the public comments we received, we are finalizing our proposal to create the following new and revised MS-DRGs:

New MS-DRGs based on procedure code 86.22:

  • MS-DRG 570 (Skin Debridement with MCC)
  • MS-DRG 571 (Skin debridement with CC)
  • MS-DRG 572 (Skin Debridement without CC/MCC)

Revised MS-DRGs based on codes currently assigned to MS-DRGs 573 through 578, excluding procedure code 86.22:

  • Revised MS-DRG 573 (Skin Graft for Skin Ulcer or Cellulitis with MCC)
  • Revised MS-DRG 574 (Skin Graft for Skin Ulcer or Cellulitis with CC)
  • Revised MS-DRG 575 (Skin Graft for Skin Ulcer or Cellulitis without CC/MCC)
  • Revised MS-DRG 576 (Skin Graft Except for Skin Ulcer or Cellulitis with MCC)
  • Revised MS-DRG 577 (Skin Graft except for Skin Ulcer or Cellulitis with CC)
  • Revised MS-DRG 578 (Skin Graft Except for Skin Ulcer or Cellulitis without CC/MCC)
7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders)
a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles

We received a request to revise the MS-DRG titles for MS-DRGs 640 through 642 to more clearly capture the cases that are currently assigned to these MS-DRGs. The current titles for these MS-DRGs are: MS-DRGs 640 (Nutritional & Miscellaneous Metabolic Disorders with MCC); MS-DRG 641 (Nutritional & Miscellaneous Metabolic Disorders without MCC); and MS-DRG 642 (Inborn Errors of Metabolism). The requestor suggested that we change the titles to: MS-DRG 640 (Miscellaneous Disorders of Nutrition, Metabolism, and Fluids and Electrolytes with MCC); MS-DRG 641 (Miscellaneous Disorders of Nutrition, Metabolism, and Fluids and Electrolytes without MCC); and MS-DRG 642 (Inborn and Other Disorders of Metabolism).

Our clinical advisors supported these suggested changes to the titles, as the suggested changes would provide a better description of the diagnoses assigned to MS-DRGs 640, 641, and 642. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to revise the MS-DRG titles for MS-DRGs 640, 641, and 642 as the requestor suggested. We invited public comment on our proposal to change the MS-DRG titles for MS-DRGs 640, 641, and 642 for FY 2012.

Comment: Several commenters supported our proposed changes to the titles of MS-DRGs 640 through 642 to better reflect the cases that are assigned to these MS-DRGs.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are finalizing our proposal to change the titles for MS-DRGs 640 through 642. The final tiles are as follows:

  • MS-DRG 640 (Miscellaneous Disorders of Nutrition, Metabolism, and Fluids and Electrolytes with MCC)
  • MS-DRG 641 (Miscellaneous Disorders of Nutrition, Metabolism, and Fluids and Electrolytes without MCC)
  • MS-DRG 642 (Inborn and Other Disorders of Metabolism).
b. Sleeve Gastrectomy Procedure for Morbid Obesity

Sleeve gastrectomy is a 70 percent to 80 percent greater curvature gastrectomy (sleeve resection of the stomach) with continuity of the gastric lesser curve being maintained while simultaneously reducing stomach volume. It may be the first step in a two-stage procedure when performing Roux-en-Y Gastric Bypass (RYGBP). Sleeve gastrectomy, whether open or laparoscopic, is currently coded using ICD-9-CM procedure code 43.89 (Other total gastrectomy). Procedure code 43.89 is currently assigned to several MS-DRGs. However, the code is not assigned to MS-DRG 619, 620, or 621 (O.R. Procedures for Obesity with MCC, with CC, and without CC/MCC, respectively).

We received a request for CMS to review MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and Disorders) for consistency. Specifically, the requestor questioned why diagnosis code 278.01 (Morbid obesity), when paired on a claim with procedure code 43.89, would be assigned to MS-DRG 981, 982, or 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, or without CC/MCC, respectively) instead of MS-DRG 619, 620, or 621.

Upon review for the FY 2012 IPPS/LTCH PPS proposed rule, we determined that diagnosis code 278.01 is assigned to MDC 10. However, procedure code 43.89 is not assigned to any MS-DRG set in this MDC. Therefore, the cases are assigned to MS-DRGs 981 through 983, reflecting procedures not related to the principal diagnosis. This was an inadvertent oversight on CMS' part when the MS-DRGs were created. Therefore, we proposed to add a procedure code or codes identifying sleeve gastrectomy to MS-DRGs 619 through 621 for FY 2012.

Currently, sleeve gastrectomy is identified in the ICD-9-CM procedure code Index as follows: Gastrectomy (partial) (subtotal) NEC 43.89. At procedure code 43.89 in the ICD-9-CM procedure code Tabular, an inclusion note identifies this code as including sleeve resection of the stomach.

In our proposal to add a procedure code or codes to MS-DRGs 619 through 621, we pointed out that there is an NCD that has precluded coverage of sleeve gastrectomy when performed either open or laparoscopically. This decision may be found in the Medicare National Coverage Determination Manual, Section 100.1, Nationally Noncovered Indications for Bariatric Surgery for Treatment of Morbid Obesity, effective on February 12, 2009. This manual is available on the CMS Web site through a link at: http://www.cms.gov/manuals/downloads/mcd103c1_Part2.pdf. This manual entry affirms that treatment for obesity via use of the open or laparoscopic sleeve gastrectomy is determined to be noncovered for Medicare beneficiaries.

Noncoverage of these cases is determined by our Medicare contractors, the fiscal intermediary or A-B/MAC, because of the nature of procedure code 43.89, which is a code that identifies several gastrectomy procedures. To identify a code in the MCE that describes many procedures would inappropriately restrict other procedures which are also described by that code, but which are covered. We received a request to create specific codes uniquely identifying both laparoscopic sleeve gastrectomy and the open procedure, vertical sleeve gastrectomy. We addressed this request at the ICD-9-CM Coordination and Maintenance Committee meeting held on March 9, 2011.

We had stated that should a code or codes be created as a result of this request, we would then be able to add this code or codes to the MCE as a conforming noncoverage edit when combined with diagnosis code 278.01. The background information discussing sleeve gastrectomy coding can be accessed on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticcodes/03_meetings.asp#TopOfPage. A summary of the meeting can be found on CMS' Web site for the ICD-9-CM Coordination and Maintenance Committee at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage by scrolling down to the .pdf zip files containing the meeting agenda and handouts.

Therefore, for FY 2012, we proposed to add a procedure code or codes identifying sleeve gastrectomy to MS-DRGs 619 through 621. However, we also indicated that we intended to add any code or codes created at the ICD-9-CM Coordination and Maintenance Committee on March 9, 2011, to the MCE because sleeve gastrectomy, whether open or laparoscopic, is not covered for Medicare beneficiaries. The code or codes would appear in the “Noncovered Procedures” edit of the MCE. As the timing of the development of the proposed rule and the date of the March 2011 meeting of the ICD-9-CM Coordination and Maintenance Committee overlapped, we could not determine if additional sleeve gastrectomy codes would be created, to what code number or numbers they would be assigned, or how the narrative describing them would read. However, we indicated that should a code or codes be created, we proposed that they would simultaneously be placed in both MS-DRGs 619 through 621 and the MCE. This decision may seem to be counterintuitive, but CMS realizes thatour MS-DRGs and the Medicare GROUPER program are used for other beneficiaries and by other insurance plans rather than strictly for Medicare beneficiaries. Any new code or codes created as a result of the ICD-9-CM Coordination and Maintenance Committee meeting are included in Table 6B (which is listed in section VI. of the Addendum to this final rule and available via the Internet at http://www.cms.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp#TopOfPage); we indicated that we did not have a mechanism to make the codes from the March 9, 2011 meeting available in the proposed rule prior to the final rule's publication.

As a result of the March 9, 2011 ICD-9-CM Coordination and Maintenance Committee Meeting, one code was created: Procedure code 43.82 (Laparoscopic vertical (sleeve) gastrectomy). To address open gastrectomies, the title of existing code 43.89 was revised to read “Open and other partial gastrectomy”. Both codes can be found in Table 6B (New Procedure Codes) and Table 6F (Revised Procedure Code Titles), which are listed in the Addendum to this final rule and available via the Internet on the CMS Web site.

Comment: Several commenters addressed both the creation of a code or codes for laparoscopic or open sleeve gastrectomy discussed above and the proposed changes to the MCE. Several commenters indicated that they had no objections to the proposed changes to the MS-DRG classifications and the MCE, stating that the proposed changes seemed reasonable, given the data and information provided. One commenter specifically requested that CMS finalize its proposal to add new procedure code 43.82 to the MCE as a noncovered procedure.

Response: We appreciate the commenters' support of our proposal.

Comment: One commenter stated that they understood that procedure code 43.89 was inadvertently omitted from MS-DRGs 619, 620, and 621 when the MS-DRGs were created and supported the addition of this code to these MS-DRGs. In addition, this commenter stated that because procedure code 43.89 is not specific to open sleeve gastrectomy, it cannot be incorporated as a “noncovered procedure” in the MCE.

Response: We appreciate the commenter's support for this proposal and agree that procedure code 43.89 includes several gastrectomy procedures. Therefore, to identify a code describing many procedures in an MCE edit would inappropriately restrict other procedures included in that code that are covered.

After consideration of the public comments we received, we are adopting as final our proposal to assign both the new procedure code 43.82 (Laparoscopic vertical (sleeve) gastrectomy) and the existing procedure code 43.89 (Other total gastrectomy) to MS-DRGs 619, 620, and 621 (O.R. Procedures for Obesity with MCC, with CC, and without CC/MCC, respectively). In addition, we are adding procedure code 43.82 to the “Noncovered Procedures” edit of the MCE because laparoscopic sleeve gastrectomy is not covered for Medicare beneficiaries. Because procedure code 43.89 includes several gastrectomy procedures, its inclusion in the MCE would be inappropriate. Therefore, it will not be placed on the MCE.

8. MDC 15 (Newborns and Other Neonates With Conditions Originating in the Perinatal Period): Discharge Status Code 66 (Discharged/Transferred to Critical Assess Hospital (CAH))

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50236), we finalized our transfer policy regarding transfer of patients from an acute care hospital to a CAH. In that final rule, we stated that hospitals are required to use patient discharge status code 66 on the IPPS claims to identify transfers to CAHs.

With this new requirement, a discharge from an IPPS hospital to a CAH equates to a transfer status. However, discharge status code 66 is currently not included in the MS-DRG GROUPER logic for MS-DRG 789 (Neonate, Died or Transferred to Another Acute Care Facility). Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to add discharge status code 66 to the MS-DRG GROUPER logic for MS-DRG 789. We invited public comment on our proposal to add discharge status code 66 to the MS-DRG GROUPER logic for MS-DRG 789 for FY 2012.

Comment: Several commenters supported our proposal to add discharge status code 66 to the MS-DRG GROUPER logic for MS-DRG 789.

Response: We appreciate the support of the commenters.

After consideration of the public comments we received, we are finalizing our proposal to add discharge status code 66 (Discharged/Transferred to Critical Assess Hospital (CAH)) to the MS-DRG GROUPER logic for MS-DRG 789.

9. Medicare Code Editor (MCE) Changes

As explained under section II.B.1. of the preamble of this final rule, the Medicare Code Editor (MCE) is a software program that detects and reports errors in the coding of Medicare claims data. Patient diagnoses, procedure(s), and demographic information are entered into the Medicare claims processing systems and are subjected to a series of automated screens. The MCE screens are designed to identify cases that require further review before classification into an MS-DRG. In this final rule, we discuss our intention to make the following change to the MCE edits.

In section II.G.7.b. of this preamble, we discuss that the current ICD-9-CM procedure code for sleeve gastrectomy (43.89 (Other partial gastrectomy, other)) is a noncovered code when performed for resection of the stomach in patients with morbid obesity. We also discuss that noncoverage for Medicare beneficiaries of cases containing procedure code 43.89 is determined by the fiscal intermediaries or A-B/MACs because of the nature of procedure code 43.89. This code is imprecise and identifies several other gastrectomy procedures in addition to sleeve resection. Therefore, to limit coverage by identifying a code that describes many procedures through the use of the MCE would inappropriately restrict other procedures that are covered by Medicare. In that section, we also state that we received a request to create specific procedure codes identifying both laparoscopic sleeve gastrectomy and open vertical sleeve gastrectomy. As we stated above, we addressed this request at the ICD-9-CM Coordination and Maintenance Committee meeting held on March 9, 2011. In the FY 2012 IPPS/LTCH PPS proposed rule (FR 76 25833 and 25834), we indicated that if a code or codes should be created as a result of this request, we would then be able to add these codes to the MCE as a conforming noncoverage edit when combined with diagnosis code 278.01 (Morbid obesity).

As the timing of development of the proposed rule and the scheduling of the ICD-9-CM Coordination and Maintenance Committee meeting on March 9, 2011 overlapped, it was not possible to determine what those codes might be, or even if they would be created for FY 2012. However, we indicated in the proposed rule that should a code or codes be created, we proposed that any code or codes for laparoscopic or open sleeve resection of the stomach would be added to the MCE as a noncovered procedure orprocedures, in combination with diagnosis code 278.01. The background information discussing sleeve gastrectomy coding can be accessed on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticcodes/03_meetings.asp#TopOfPage. New codes describing sleeve gastrectomy are included in Table 6B (which is listed in section VI. of the Addendum to this final rule and are also available via the Internet at http://www.cms.gov/ICD9ProviderDiagnosticCodes/04_addendum.asp#TopOfPage). In the proposed rule, we indicated that we did not have a mechanism to make the codes available prior to the final rule's publication, and invited public comments on this proposal.

As a result of the March 9, 2011 ICD-9-CM Coordination and Maintenance Committee Meeting, one code was created: procedure code 43.82 (Laparoscopic vertical (sleeve) gastrectomy). To address open gastrectomies, the title of existing procedure code 43.89 was revised to read “Open and other partial gastrectomy”. Both codes can be found in Tables 6B and 6F, which are listed in the Addendum to this final rule and available via the Internet.

Comment: Several commenters indicated that they had no objections to the proposed changes to the MS-DRG classifications and the MCE, stating that the proposed changes seemed reasonable, given the data and information provided. One commenter specifically requested that CMS finalize its proposal to add new procedure code 43.82 to the MCE as a noncovered procedure.

Response: We appreciate the commenters' support of our proposals.

Comment: Several commenters stated that because procedure code 43.89 is not specific to open sleeve gastrectomy it cannot be incorporated as a “noncovered procedure” in the MCE.

Response: We agree that procedure code 43.89 includes several gastrectomy procedures, and to identify this code describing many procedures in an MCE edit would be inappropriately restricting other procedures that are covered.

Comment: One commenter recognized that procedure codes discussed at the ICD-9-CM Coordination and Maintenance Committee Meeting of March 9, 2011 could not logistically be included in the IPPS proposed rule. The commenter urged CMS to apply current logic to code revisions that were discussed at the March 2011 ICD-9-CM Coordination and Maintenance Committee meeting, but which could not be finalized in time to include them in the proposed rule.

Response: We appreciate that the public understands some of the timing constraints under which we must operate. We assure the public that the same logic considerations regarding code assignment to predecessor MS-DRGs as well as O.R. determinations are applied to newly created codes from the March 2011 ICD-9-CM Coordination and Maintenance Committee Meeting as were applied to the codes created as a result of the September 15, 2010 ICD-9-CM Coordination and Maintenance Committee Meeting.

After consideration of the public comments we received, we are adopting as final our proposal to add procedure code 43.82 to the “Noncovered Procedures” edit of the MCE, given that laparoscopic sleeve gastrectomy is not covered for Medicare beneficiaries. Because procedure code 43.89 includes several gastrectomy procedures, its inclusion in the MCE would be inappropriate. Therefore, we are not placing it on the MCE.

10. Surgical Hierarchies

Some inpatient stays entail multiple surgical procedures, each one of which, occurring by itself, could result in assignment of the case to a different MS-DRG within the MDC to which the principal diagnosis is assigned. Therefore, it is necessary to have a decision rule within the GROUPER by which these cases are assigned to a single MS-DRG. The surgical hierarchy, an ordering of surgical classes from most resource-intensive to least resource-intensive, performs that function. Application of this hierarchy ensures that cases involving multiple surgical procedures are assigned to the MS-DRG associated with the most resource-intensive surgical class.

Because the relative resource intensity of surgical classes can shift as a function of MS-DRG reclassification and recalibrations, we reviewed the surgical hierarchy of each MDC, as we have for previous reclassifications and recalibrations, to determine if the ordering of classes coincides with the intensity of resource utilization.

A surgical class can be composed of one or more MS-DRGs. For example, in MDC 11, the surgical class “kidney transplant” consists of a single MS-DRG (MS-DRG 652) and the class “major bladder procedures” consists of three MS-DRGs (MS-DRGs 653, 654, and 655). Consequently, in many cases, the surgical hierarchy has an impact on more than one MS-DRG. The methodology for determining the most resource-intensive surgical class involves weighting the average resources for each MS-DRG by frequency to determine the weighted average resources for each surgical class. For example, assume surgical class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are higher than the average costs of MS-DRG 2. To determine whether surgical class A should be higher or lower than surgical class B in the surgical hierarchy, we would weigh the average costs of each MS-DRG in the class by frequency (that is, by the number of cases in the MS-DRG) to determine average resource consumption for the surgical class. The surgical classes would then be ordered from the class with the highest average resource utilization to that with the lowest, with the exception of “other O.R. procedures” as discussed below.

This methodology may occasionally result in assignment of a case involving multiple procedures to the lower-weighted MS-DRG (in the highest, most resource-intensive surgical class) of the available alternatives. However, given that the logic underlying the surgical hierarchy provides that the GROUPER search for the procedure in the most resource-intensive surgical class, in cases involving multiple procedures, this result is sometimes unavoidable.

We note that, notwithstanding the foregoing discussion, there are a few instances when a surgical class with a lower average cost is ordered above a surgical class with a higher average cost. For example, the “other O.R. procedures” surgical class is uniformly ordered last in the surgical hierarchy of each MDC in which it occurs, regardless of the fact that the average costs for the MS-DRG or MS-DRGs in that surgical class may be higher than those for other surgical classes in the MDC. The “other O.R. procedures” class is a group of procedures that are only infrequently related to the diagnoses in the MDC, but are still occasionally performed on patients in the MDC with these diagnoses. Therefore, assignment to these surgical classes should only occur if no other surgical class more closely related to the diagnoses in the MDC is appropriate.

A second example occurs when the difference between the average costs for two surgical classes is very small. We have found that small differences generally do not warrant reordering of the hierarchy because, as a result of reassigning cases on the basis of the hierarchy change, the average costs are likely to shift such that the higher-ordered surgical class has a lower average costs than the class ordered below it.

As we proposed, based on the changes that we are make for FY 2012, as discussed in sections II.G.1. and 6. of this preamble, we are revising the surgical hierarchy for Pre-MDCs and MDC 9 (Diseases and Disorders of the Skin, Subcutaneous Tissue, and Breast) as follows:

In Pre-MDCs, we are reordering new MS-DRG 016 (Autologous Bone Marrow Transplant with CC/MCC) and new MS-DRG 017 (Autologous Bone Marrow Transplant without CC/MCC) above MS-DRG 010 (Pancreas Transplant).

In MDC 9, we are reordering—

  • MS-DRG 578 (Skin Graft Except for Skin Ulcer or Cellulitis without CC/MCC) above new MS-DRG 570 (Skin Debridement with MCC);
  • New MS-DRG 570 above new MS-DRG 571 (Skin Debridement with CC);
  • New MS-DRG 571 above new MS-DRG 572 (Skin Debridement without CC/MCC; and
  • New MS-DRG 572 above MS-DRG 579 (Other Skin, Subcutaneous Tissue, and Breast Procedures with MCC).

Comment: Commenters generally supported our proposals.

Response: Based on these public comments and our review of the proposed revisions using the March 2011 update of the FY 2010 MedPAR file and the revised GROUPER software, we found that the revisions are still supported by the data. Therefore, we have incorporated the proposed revisions to the surgical hierarchy as final for FY 2012.

11. Complications or Comorbidity (CC) Exclusions List
a. Background

As indicated earlier in the preamble of this final rule, under the IPPS MS-DRG classification system, we have developed a standard list of diagnoses that are considered CCs. Historically, we developed this list using physician panels that classified each diagnosis code based on whether the diagnosis, when present as a secondary condition, would be considered a substantial complication or comorbidity. A substantial complication or comorbidity was defined as a condition that, because of its presence with a specific principal diagnosis, would cause an increase in the length of stay by at least 1 day in at least 75 percent of the patients. We refer readers to section II.D.2. and 3. of the preamble of the FY 2008 IPPS final rule with comment period for a discussion of the refinement of CCs in relation to the MS-DRGs we adopted for FY 2008 (72 FR 47121 through 47152).

b. CC Exclusions List for FY 2012

In the September 1, 1987 final notice (52 FR 33143) concerning changes to the DRG classification system, we modified the GROUPER logic so that certain diagnoses included on the standard list of CCs would not be considered valid CCs in combination with a particular principal diagnosis. We created the CC Exclusions List for the following reasons: (1) To preclude coding of CCs for closely related conditions; (2) to preclude duplicative or inconsistent coding from being treated as CCs; and (3) to ensure that cases are appropriately classified between the complicated and uncomplicated DRGs in a pair. As we indicated above, we developed a list of diagnoses, using physician panels, to include those diagnoses that, when present as a secondary condition, would be considered a substantial complication or comorbidity. In previous years, we have made changes to the list of CCs, either by adding new CCs or deleting CCs already on the list.

In the May 19, 1987 proposed notice (52 FR 18877) and the September 1, 1987 final notice (52 FR 33154), we explained that the excluded secondary diagnoses were established using the following five principles:

  • Chronic and acute manifestations of the same condition should not be considered CCs for one another.
  • Specific and nonspecific (that is, not otherwise specified (NOS)) diagnosis codes for the same condition should not be considered CCs for one another.
  • Codes for the same condition that cannot coexist, such as partial/total, unilateral/bilateral, obstructed/unobstructed, and benign/malignant, should not be considered CCs for one another.
  • Codes for the same condition in anatomically proximal sites should not be considered CCs for one another.
  • Closely related conditions should not be considered CCs for one another.

The creation of the CC Exclusions List was a major project involving hundreds of codes. We have continued to review the remaining CCs to identify additional exclusions and to remove diagnoses from the master list that have been shown not to meet the definition of a CC. (2)

(1) Limited Revisions Based on Changes to the ICD-9-CM Diagnosis Codes

For FY 2012, we proposed to make limited revisions to the CC Exclusions List to take into account the changes made in the ICD-9-CM diagnosis coding system effective October 1, 2011. (We refer readers to section II.G.13. of the preamble of this final rule for a discussion of ICD-9-CM changes.) We proposed to make these changes in accordance with the principles established when we created the CC Exclusions List in 1987. In addition, we indicated on the CC Exclusions List some changes as a result of updates to the ICD-9-CM codes to reflect the exclusion of codes from being MCCs under the MS-DRG system that we adopted in FY 2008.

CMS encourages input from our stakeholders concerning the annual IPPS updates when that input is made available to us by December of the year prior to the next annual proposed rule update. For example, to be considered for any updates or changes in FY 2012, comments and suggestions should have been submitted by early December 2010. The following comments were submitted in a timely manner and, therefore, are being discussed in this section.

(A) Pressure Ulcer Diagnosis Codes

We received a comment recommending that CMS remove diagnosis codes 707.23 (Pressure ulcer, stage III) and 707.24 (Pressure ulcer, stage IV) from the CC Exclusion List when reported as a secondary diagnosis code with a principal diagnosis code for the pressure ulcer site: Diagnosis code 707.00 (Pressure ulcer, unspecified); diagnosis code 707.01 (Pressure ulcer,elbow); diagnosis code 707.02 (Pressure ulcer, upper back); diagnosis code 707.03 (Pressure ulcer, lower back); diagnosis code 707.04 (Pressure ulcer, hip); diagnosis code 707.05 (Pressure ulcer, buttock); diagnosis code 707.06 (Pressure ulcer, ankle); diagnosis code 707.07 (Pressure ulcer, heel); or diagnosis code 707.09 (Pressure ulcer, other site). Currently, when a patient is admitted with a pressure ulcer, the CC Exclusion List prevents a pressure ulcer stage diagnosis code from being designated as an MCC when reported as a secondary diagnosis. The commenter disagreed with this approach and contended that a patient admitted for treatment of a stage III or stage IV pressure ulcer likely requires resources that would qualify the case as a diagnosis with an MCC or, at a minimum, as a CC.

Our clinical advisors agreed with the commenter. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to remove diagnosis codes 707.23 and 707.24 from the CC Exclusion List when a principal diagnosis code of one of codes 707.00 through 707.09 is reported. Under this proposal, diagnosis code 707.23 or diagnosis code 707.24 would be an MCC when reported as a secondary diagnosis code with a principal diagnosis code of one of codes 707.00 through 707.09.

Comment: Several commenters supported the proposed removal of diagnosis codes 707.23 and 707.24 from the CC Exclusion list when a principal diagnosis code of one of the codes 707.00 through 707.09 is reported.

Response: We appreciate the support of the commenters. As stated above, we believe this proposed change has merit.

After consideration of the public comments we received, we are adopting as final our proposal to remove diagnosis codes 707.23 (Pressure ulcer stage III) and 707.24 (Pressure ulcer stage IV) from the CC Exclusion List when reported as a secondary diagnosis code with a principal diagnosis code for the pressure ulcer site: diagnosis code 707.00 (Pressure ulcer, unspecified); diagnosis code 707.01 (Pressure ulcer, elbow); diagnosis code 707.02 (Pressure ulcer, upper back); diagnosis code 707.03 (Pressure ulcer, lower back); diagnosis code 707.04 (Pressure ulcer, hip); diagnosis code 707.05 (Pressure ulcer, buttock); diagnosis code 707.06 (Pressure ulcer, ankle); diagnosis code 707.07 (Pressure ulcer, heel); or diagnosis code 707.09 (Pressure ulcer, other site).

(B) End-Stage Renal Disease Diagnosis Code

We received a suggestion from a commenter that diagnosis code 585.6 (End-stage renal disease) be added to the CC Exclusion List when reported with a principal diagnosis code of 403.90 (Hypertensive chronic kidney disease, unspecified, with chronic kidney disease stage I through stage IV, or unspecified) or diagnosis code 403.91 (Hypertensive chronic kidney disease, unspecified, with chronic kidney disease stage V or end-stage renal disease). Currently, diagnosis code 585.6 is designated as an MCC.

According to the commenter, diagnosis codes 585.6 and 403.91 are essentially the same diagnosis but coding guidelines require the reporting of two codes to identify the stage of chronic kidney disease when associated with hypertensive chronic kidney disease. The commenter suggested that there is no need for diagnosis code 585.6 to be designated as an MCC when reported with a principal diagnosis of hypertensive chronic kidney disease, stage V or end-stage renal disease. The commenter also pointed out that, while coding guidelines would preclude diagnosis codes 403.90 and 585.6 from being reported together, the MS-DRG GROUPER allows diagnosis code 585.6 to act as an MCC when reported as a secondary diagnosis with principal diagnosis code 403.90.

As discussed in the proposed rule, in response to the first issue, our clinical advisors disagree with the commenter. Diagnosis code 403.91 includes chronic kidney disease stage V or end-stage renal disease. These are two separate conditions (or stages) that are identified by two unique codes. Diagnosis code 585.5 identifies stage V chronic kidney disease and is classified as a CC. Diagnosis code 585.6 identifies end-stage renal disease, is classified as an MCC, and describes patients who require chronic dialysis. The patients diagnosed with stage V chronic kidney disease are a different population who require different resources than those patients who are diagnosed with end-stage renal disease. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we did not propose to add diagnosis code 585.6 to the CC Exclusion List when reported with a principal diagnosis of code 403.91.

On the second issue raised by the commenter, our clinical advisors agreed. Diagnosis code 403.90 identifies patients with chronic kidney disease, stages I through IV or unspecified, and diagnosis code 585.6 identifies end-stage renal disease. Our clinical advisors indicate that the reporting of diagnosis code 585.6 should not be designated as an MCC in this case. We agreed with the commenter that diagnosis codes 403.90 and 585.6 should not be reported together as instructed by the Coding Guidelines. Only a code from the 585.1 through 585.4 range (stages I through IV, or unspecified) should be reported with diagnosis code 403.90. Diagnosis code 585.6 is the exclusive code that uniquely identifies end-stage renal disease and should only be reported with diagnosis code 403.91. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to add diagnosis code 585.6 to the CC Exclusion List when reported with a principal diagnosis code of 403.90.

Comment: Several commenters supported our proposal to add diagnosis code 585.6 to the CC Exclusion List when reported with a principal diagnosis code of 403.90.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are adopting as final our proposal to add diagnosis code 585.6 (End stage renal disease) to the CC Exclusion List when reported with a principal diagnosis code of 403.90 (Hypertensive chronic kidney disease, unspecified, with chronic kidney disease stage I through stage IV, or unspecified).

(C) Hypertensive Chronic Kidney Disease With Chronic Kidney Disease Stage V or End-Stage Renal Disease Code

We received a comment recommending the addition of diagnosis code 403.91 (Hypertensive chronic kidney disease, unspecified, with chronic kidney disease stage V or end-stage renal disease) to the CC Exclusion List when reported as a secondary diagnosis code with principal diagnosis code 585.6 (End stage renal disease). The commenter stated that it would be unlikely that diagnosis code 403.91 would be reported as a secondary diagnosis code with diagnosis code 585.6 as the principal diagnosis code due to sequencing rules for end-stage renal disease with hypertension. Currently, diagnosis code 403.91 is designated as a CC.

Our clinical advisors agreed with the commenter. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to add diagnosis code 403.91 to the CC Exclusion List when reported as a secondary diagnosis code with principal diagnosis code 585.6.

Comment: Several commenters supported our proposal to add diagnosis code 403.91 to the CC Exclusion Listwhen reported as a secondary diagnosis code with principal diagnosis code 585.6.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, we are adopting as final our proposal to add diagnosis code 403.91 (Hypertensive chronic kidney disease, unspecified, with chronic kidney disease stage V or end stage renal disease) to the CC Exclusion List when reported as a secondary diagnosis code with principal diagnosis code 585.6 (End stage renal disease).

(2) Suggested Changes to Severity Levels for Encephalopathy

We received a request that we consider changing the following diagnosis codes from an MCC to a CC:

  • 348.30 (Encephalopathy NOS)
  • 348.31 (Metabolic encephalopathy)
  • 348.39 (Encephalopathy NEC)
  • 349.82 (Toxic encephalopathy)
  • 572.2 (Hepatic encephalopathy)

For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed the claims data for the diagnosis codes mentioned above related to encephalopathy. We used the same approach we used in initially creating the MS-DRGs and classifying secondary diagnosis codes as non-CCs, CCs, or MCCs. A detailed discussion of the process and criteria we used in this process is described in the FY 2008 IPPS final rule (72 FR 47158 through 47161). We refer the readers to this discussion for complete information on our approach to developing the non-CC, CC, and MCC lists. Each diagnosis for which Medicare data were available was evaluated to determine its impact on resource use and to determine the most appropriate CC subclass (non-CC, CC, or MCC) assignment. In order to make this determination, the average cost for each subset of cases was compared to the expected cost for cases in that subset. The following format was used to evaluate each diagnosis:

CodeDiagnosisCnt1C1Cnt2C2Cnt3C3

Count (Cnt) is the number of patients in each subset. C1, C2, and C3 are a measure of the impact on resource use of patients in each of the subsets. The C1, C2, and C3 values are a measure of the ratio of average costs for patients with these conditions to the expected average cost across all cases. The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC but none that is a MCC. The C3 value reflects a patient with at least one other secondary diagnosis that is a MCC. A value close to 1.0 in the C1 field would suggest that the diagnosis code produces the same expected value as a non-CC. A value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. A value close to 3.0 suggests the condition is expected to consume resources more similar to an MCC than a CC or non-CC. For additional details on this analysis, we refer readers to the FY 2008 IPPS final rule (72 FR 47158 through 47161).

The following chart shows the analysis for each of the encephalopathy diagnosis codes that are currently classified as MCCs.

CodeDiagnosis descriptionCC levelCnt 1Cnt 1impactCnt 2Cnt 2impactCnt 3Cnt 3impact
34830Encephalopathy NOSMCC10,0822.120639,0422.777460,3813.3702
34831Metabolic encephalopathyMCC6,3892.058029,6512.695249,3433.4011
34839Encephalopathy NECMCC4,0042.111815,0032.735519,7323.3708
34982Toxic encephalopathyMCC4,3332.315818,1263.002326,0093.5714
5722Hepatic encephalopathyMCC1,3751.54489,8852.505412,4213.4435

We ran the following data as described in FY 2008 IPPS final rule (72 FR 47158 through 47161). The C1 value reflects a patient with no other secondary diagnosis or with all other secondary diagnoses that are non-CCs. The C2 value reflects a patient with at least one other secondary diagnosis that is a CC but none that is a MCC. The C3 value reflects a patient with at least one other secondary diagnosis that is a MCC.

The chart above shows that the C1 findings ranged from a low of 1.5448 to a high of 2.3158. As stated earlier, a C1 value close to 2.0 suggests the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. The C1 findings suggest that these codes are more like a CC than a MCC. However, the C2 findings ranged from a low of 2.5054 to a high of 3.0023. Values close to 3.0 suggests the condition is more similar to an MCC than a CC or non-CC. The C2 findings support maintaining the encephalopathy codes as an MCC level. The data are clearly mixed between the C1 and C2 findings, and does not consistently support a change in the severity level. Our clinical advisers recommended that these encephalopathy codes remain at an MCC level because these patients with encephalopathy typically utilize significant resources and are at a higher severity level. Based on the clinical analysis and the lack of consistent claims data support for the severity level change, we indicated in the proposed rule that we believe that the encephalopathy codes should remain on the MCC list. Therefore, we proposed to retain the following encephalopathy codes on the MCC list:

  • 348.30 (Encephalopathy NOS)
  • 348.31 (Metabolic encephalopathy)
  • 348.39 (Encephalopathy NEC)
  • 349.82 (Toxic encephalopathy)
  • 572.2 (Hepatic encephalopathy)

We invited public comment on our proposal not to change the severity level classification for these codes.

Comment: Several commenters supported our proposal not to change the MCC severity level classification for the encephalopathy codes listed above. The commenters agreed with our findings that the data were mixed between the C1 and C2 findings for these codes, which are currently on the MCC list, and that clinical evaluation of these conditions supports maintaining them on the MCC list.

Response: We appreciate the commenters' support. As stated above, our data showed mixed findings for C1 and C2 with C1 findings supporting a change to CC, but C2 findings supporting maintaining the codes on the MCC list. Our clinical advisors' evaluation of encephalopathy patients supports our proposal to maintain these encephalopathy codes on the MCC list.

After consideration of the public comments we received, as we proposed, we are keeping the following encephalopathy codes on the MCC list.

  • 348.30 (Encephalopathy NOS) MCC
  • 348.31 (Metabolic encephalopathy) MCC
  • 348.39 (Encephalopathy NEC) MCC
  • 349.82 (Toxic encephalopathy) MCC
  • 572.2 (Hepatic encephalopathy) MCC

(3) Suggested Changes to Severity Levels for Mechanical Complication and Infection Due to Device-Related Codes

We received a request to change the severity classification from CCs to MCCs for the following diagnosis codes:

  • 996.01 (Mechanical of cardiac device, implant and graft due to cardiac pacemaker (electrode)).
  • 996.04 (Mechanical complication of cardiac device, implant, and graft due to automatic implantable cardiac defibrillator).
  • 996.61 (Infection and inflammatory reaction due to internal prosthetic device, implant, and graft due to cardiac device, implant, and graft).

Currently, all three diagnosis codes are classified as a CC. For the FY 2012 IPPS/LTCH PPS proposed rule, we analyzed claims data using the methodology described previously in this section for these diagnosis codes. The following chart shows our findings:

CodeDiagnosis descriptionCCLevelCnt 1Cnt 1ImpactCnt 2Cnt 2ImpactCnt 3Cnt 3Impact
99601Malfunc cardiac pacemakerCC1,2961.67231,9202.43321,3333.1134
99604Mch cmp autm mplnt dfbrlCC4191.70411,0322.51906603.1508
99661React-cardiac dev/graftCC1491.99226332.81341,2533.5036

We reviewed the findings from these data. The C1 findings ranged from a low of 1.6723 to a high of 1.9922. As stated earlier, a value close to 2.0 in the C1 field suggests that the condition is more like a CC than a non-CC but not as significant in resource usage as an MCC. The C1 findings clearly support the current classification of these three codes on the CC list and the C2 findings supports this classification. Our clinical advisors agree that the data findings and their own clinical evaluation of the severity level of these conditions support the classification of these three codes on the CC list. Therefore, we proposed that these codes remain on the CC list. We invited public comment on this proposal.

Comment: Several commenters supported our proposal to maintain the mechanical complication and infection due to device-related codes mentioned above on the CC list. The commenters agreed that the data as well as our clinical advisors' evaluation support the current classification.

Several commenters opposed our proposal to keep the mechanical complication and infection due to device-related codes on the CC list. In support of their position, the commenters cited our decision to keep the encephalopathy codes on the MCC list. They pointed out that the encephalopathy codes had C1 findings of a low of 1.5448 to a high of 2.3158 and C2 findings of a low of 2.5054 to a high of 3.0023, yet they were maintained on the MCC list. The commenters believed that the same logic should be applied to the mechanical complication and infection due to device-related codes which had C1 findings of a low of 1.6723 to a high of 1.9922 and C2 findings of a low of 2.4332 to a high of 2.8134. One commenter also offered data from the Healthcare Utilization Project (HCUP) database which showed 2008 national statistics of average costs for patients admitted with one of these codes as a principal diagnosis. This commenter stated that these data showed average costs as follows:

2008 National Statistics—Principal Diagnosis Only Ranked by Costs, Descending Order: Medicare Only
ICD-9-CMPrincipal diagnosis codeTotal number of dischargesLength of stay (LOS) (mean)Charges$(mean)Costs$(mean)
996.61—React-Cardiac Dev/Graft8,94410.795,25126,893
996.04—Mch Comp Aut, Mplnt Dfbri8,0953.259,92416,891
996.01—Malfunc Cardiac Pacemake8,6642.837,05611,044
427.5—Cardiac Arrest4,7813.635,49910,908
349.82—Toxic Encephalopathy6,8356.537,91310,765
428.23—Ac On Chr Syst Hrt Fail75,5115.833,73210,689
428.1—Left Heart Failure2,2615.126,77710,252
348.39—Encephalopathy Nec4,8806.332,1249,609
428.31—Ac Diastolic Hrt Failure37,2165.530,1679,298
348.30—Encephalopathy Nos11,0575.931,9339,232
572.2—Hepatic encephalopathy20,1545.428,0568,580

The commenter stated that these data support changing these codes to the MCC list since the costs associated with these admissions were higher than admissions for encephalopathy.

Response: We agree with the commenters who supported maintaining the current CC severity level for the mechanical complication and infection due to device related codes. As discussed above the C1 and C2 findings as well as the advice of our clinical advisors supports this recommendation.

We disagree with the commenters who made comparisons to our proposals for the encephalopathy codes. The encephalopathy codes had C1 findings of a low of 1.5448 to a high of 2.3158 and C2 findings of a low of 2.5054 to a high of 3.0023. The encephalopathy codes C1 findings supported a change to a CC level. The C2 findings of a high of 3.0023 support the current MCC assignment for those codes.

The mechanical complication and infection due to device-related codes had C1 findings of a low of 1.6723 anda high of 1.9922, which are more like a CC than a non-CC but not as significant in resource usage as an MCC. The C2 findings of a low of 2.4332 and a high of 2.8134 are also supportive of a CC classification because, while one was a high of 2.8134, the other was only 2.4332. Only one of the codes had a finding that approached 3.0 and neither exceeded 3.0. Furthermore, our clinical advisors' evaluation of data on patients with encephalopathy as a secondary diagnosis indicates that these patients are at a higher severity level. Our clinical advisors did not believe that patients who have one of the mechanical complication and infection due to device-related codes as a secondary diagnoses would require resources justifying the MCC severity level.

We point out that the data that the commenter shared focused on patients admitted for either a mechanical complication or infection due to device-related code or for encephalopathy. In other words, these conditions were the principal diagnosis in this data. These cases did not report the codes as secondary diagnoses. Our clinical criteria are based on these conditions being reported as a secondary diagnosis and the effect that has on all types of admissions. A detailed discussion of the process and criteria we used in this process is described in the FY 2008 IPPS final rule with comment period (72 FR 47158 through 47161). It may well make a difference in the overall costs of the admission if a patient were admitted for these types of complications and required a pacemaker insertion during the stay. Clearly, the encephalopathy cases would not have had a device inserted. Therefore, it is not possible to determine the effect of the impact of these conditions as a secondary diagnosis based on these data because the additional costs of a device is included. Our approach isolates the effect of the individual code on all types of admissions when it is reported as a secondary diagnosis. It also looks at whether this code is the only CC or MCC reported (C1 cases), reported with another CC diagnosis (C2 cases), or reported with another MCC diagnosis (C3). We cannot determine what, if any, secondary diagnoses were present for the cases shown in the HCUP data shown above.

We believe our consistent approach to evaluating the effect of a secondary diagnosis is more appropriate than looking at average costs when the condition is reported as a principal diagnosis in establishing the severity level of these codes. Modifying the approach by also looking at the principal diagnosis would significantly modify our current approach that focuses solely on evaluating the impact of secondary diagnoses on increasing the severity of the overall admission. We also note that our clinical advisors' evaluation of these cases, who advised that the codes should remain on the CC lists, supports the findings of the data and maintaining the codes on the CC list.

After consideration of the public comments we received, as we proposed, we are maintain the mechanical complication and infection due to device-related codes listed below on the CC list for FY 2012.

  • 996.01 (Mechanical of cardiac device, implant and graft due to cardiac pacemaker (electrode))—CC
  • 996.04 (Mechanical complication of cardiac device, implant, and graft due to automatic implantable cardiac defibrillator)—CC
  • 996.61 (Infection and inflammatory reaction due to internal prosthetic device, implant, and graft due to cardiac device, implant, and graft)—CC

Tables 6G and 6H, Additions to and Deletions from the CC Exclusion List, respectively, which are effective for discharges occurring on or after October 1, 2011, are not being published in the Addendum to this final rule because of the length of the two tables. Instead, we are making them available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal diagnoses for which there is a CC exclusion is shown in Tables 6G and 6H, which are listed in section VI. of the Addendum to this final rule (and available via the Internet) with an asterisk, and the conditions that will not count as a CC, are provided in an indented column immediately following the affected principal diagnosis.

A complete updated MCC, CC, and Non-CC Exclusions List is also available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or after October 1, 2011, the indented diagnoses will not be recognized by the GROUPER as valid CCs for the asterisked principal diagnosis.

To assist readers in identifying the changes to the MCC and CC lists that occurred as a result of updates to the ICD-9-CM codes, as described in Tables 6A, 6C, and 6E, which are listed in section VI. of the Addendum to this final rule and available via the Internet, we are providing the following summaries of those MCC and CC changes for FY 2012.

Summary of Additions to the MS-DRG MCC List—Table 6I.1
CodeDescription
284.11Antineoplastic chemotherapy induced pancytopenia.
284.12Other drug-induced pancytopenia.
348.82Brain death.
415.13Saddle embolus of pulmonary artery.
444.01Saddle embolus of abdominal aorta.
488.81Influenza due to identified novel influenza A virus with pneumonia.
516.4Lymphangioleiomyomatosis.
516.61Neuroendocrine cell hyperplasia of infancy.
516.62Pulmonary interstitial glycogenosis.
516.63Surfactant mutations of the lung.
516.64Alveolar capillary dysplasia with vein misalignment.
516.69Other interstitial lung diseases of childhood.
518.51Acute respiratory failure following trauma and surgery.
518.52Other pulmonary insufficiency, not elsewhere classified, following trauma and surgery.
518.53Acute and chronic respiratory failure following trauma and surgery.
747.31Pulmonary artery coarctation and atresia.
747.32Pulmonary arteriovenous malformation.
747.39Other anomalies of pulmonary artery and pulmonary circulation.
808.54Multiple open pelvic fractures without disruption of pelvic circle.
998.01Postoperative shock, cardiogenic.
998.02Postoperative shock, septic.
998.09Postoperative shock, other.
Summary of Deletions From the MS-DRG MCC List—Table 6I.2
CodeDescription
518.5Pulmonary insufficiency following trauma and surgery.
747.3Anomalies of pulmonary artery.
Summary of Additions to the MS-DRG CC List—Table 6J.1
CodeDescription
284.19Other pancytopenia.
286.52Acquired hemophilia.
286.53Antiphospholipid antibody with hemorrhagic disorder.
286.59Other hemorrhagic disorder due to intrinsic circulating anticoagulants, antibodies, or inhibitors.
294.21Dementia, unspecified, with behavioral disturbance.
358.30Lambert-Eaton syndrome, unspecified.
358.31Lambert-Eaton syndrome in neoplastic disease.
358.39Lambert-Eaton syndrome in other diseases classified elsewhere.
425.11Hypertrophic obstructive cardiomyopathy.
425.18Other hypertrophic cardiomyopathy.
444.09Other arterial embolism and thrombosis of abdominal aorta.
512.2Postoperative air leak.
512.81Primary spontaneous pneumothorax.
512.82Secondary spontaneous pneumothorax.
512.83Chronic pneumothorax.
512.84Other air leak.
512.89Other pneumothorax.
516.33Acute interstitial pneumonitis.
516.35Idiopathic lymphoid interstitial pneumonia.
516.36Cryptogenic organizing pneumonia.
516.37Desquamative interstitial pneumonia.
516.5Adult pulmonary Langerhans cell histiocytosis.
539.01Infection due to gastric band procedure.
539.09Other complications of gastric band procedure.
539.81Infection due to other bariatric procedure.
539.89Other complications of other bariatric procedure.
596.81Infection of cystostomy.
596.82Mechanical complication of cystostomy.
596.83Other complication of cystostomy.
808.44Multiple closed pelvic fractures without disruption of pelvic circle.
996.88Complications of transplanted organ, stem cell.
997.32Postprocedural aspiration pneumonia.
997.41Retained cholelithiasis following cholecystectomy.
997.49Other digestive system complications.
998.00Postoperative shock, unspecified.
999.32Bloodstream infection due to central venous catheter.
999.33Local infection due to central venous catheter.
999.34Acute infection following transfusion, infusion, or injection of blood and blood products.
999.41Anaphylactic reaction due to administration of blood and blood products.
999.42Anaphylactic reaction due to vaccination.
999.49Anaphylactic reaction due to other serum.
999.51Other serum reaction due to administration of blood and blood products.
999.52Other serum reaction due to vaccination.
999.59Other serum reaction.
Summary of Deletions From the MS-DRG CC List—Table 6J.2
CodeDescription
284.1Pancytopenia.
286.5Hemorrhagic disorder due to intrinsic circulating anticoagulants.
425.1Hypertrophic obstructive cardiomyopathy.
444.0Embolism and thrombosis of abdominal aorta.
512.8Other spontaneous pneumothorax.
516.3Idiopathic fibrosing alveolitis.
997.4Digestive system complications.
998.0Postoperative shock.
999.4Anaphylactic shock due to serum.
999.5Other serum reaction.

Alternatively, the complete documentation of the GROUPER logic, including the current CC Exclusions List, is available from 3M/Health Information Systems (HIS), which, under contract with CMS, is responsible for updating and maintaining the GROUPER program. The current MS-DRG Definitions Manual, Version 28.0, is available on a CD for $225.00. Version 29.0 of this manual, which will include the final FY 2012 MS-DRG changes, will be available on a CD for $225.00. These manuals may be obtained by writing 3M/HIS at the following address: 100 Barnes Road, Wallingford, CT 06492; or by calling (203) 949-0303, or by obtaining an order form at the Web site: http://www.3MHIS.com. Please specify the revision or revisions requested.

12. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 986; and 987 Through 989

Each year, we review cases assigned to former CMS DRG 468 (Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis) to determine whether it would be appropriate to change the procedures assigned among these CMS DRGs. Under the MS-DRGs that we adopted for FY 2008, CMS DRG 468 was split three ways and became MS-DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 (Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, respectively).

MS-DRGs 981 through 983, 984 through 986, and 987 through 989 (formerly CMS DRGs 468, 476, and 477, respectively) are reserved for those cases in which none of the O.R. procedures performed are related to the principal diagnosis. These MS-DRGs are intended to capture atypical cases, that is, those cases not occurring with sufficient frequency to represent a distinct, recognizable clinical group. MS-DRGs 984 through 986 (previously CMS DRG 476) are assigned to those discharges in which one or more of the following prostatic procedures are performed and are unrelated to the principal diagnosis:

  • 60.0, Incision of prostate
  • 60.12, Open biopsy of prostate
  • 60.15, Biopsy of periprostatic tissue
  • 60.18, Other diagnostic procedures on prostate and periprostatic tissue
  • 60.21, Transurethral prostatectomy
  • 60.29, Other transurethral prostatectomy
  • 60.61, Local excision of lesion of prostate
  • 60.69, Prostatectomy, not elsewhere classified
  • 60.81, Incision of periprostatic tissue
  • 60.82, Excision of periprostatic tissue
  • 60.93, Repair of prostate
  • 60.94, Control of (postoperative) hemorrhage of prostate
  • 60.95, Transurethral balloon dilation of the prostatic urethra
  • 60.96, Transurethral destruction of prostate tissue by microwave thermotherapy
  • 60.97, Other transurethral destruction of prostate tissue by other thermotherapy
  • 60.99, Other operations on prostate

All remaining O.R. procedures are assigned to MS-DRGs 981 through 983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those discharges in which the only procedures performed are nonextensive procedures that are unrelated to the principal diagnosis. (3)

Our review of MedPAR claims data showed that there were no cases that merited movement or should logically be assigned to any of the other MDCs. Therefore, for FY 2012, we did not propose to change the procedures assigned among these MS-DRGs.

We did not receive any public comments on this proposal. Therefore, as we proposed, we are not making any changes to the procedures assigned to MS-DRGs 981 through 983, 984 through 986, and 987 through 989 for FY 2012.

a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 Through 989 Into MDCs

We annually conduct a review of procedures producing assignment to MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC.MCC, respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, respectively) on the basis of volume, by procedure, to see if it would be appropriate to move procedure codes out of these MS-DRGs into one of the surgical MS-DRGs for the MDC into which the principal diagnosis falls. The data are arrayed in two ways for comparison purposes. We look at a frequency count of each major operative procedure code. We also compare procedures across MDCs by volume of procedure codes within each MDC.

We identify those procedures occurring in conjunction with certain principal diagnoses with sufficient frequency to justify adding them to one of the surgical MS-DRGs for the MDC inwhich the diagnosis falls. As noted above, there were no cases that merited movement or that should logically be assigned to any of the other MDCs. Therefore, for FY 2012, we did not propose to remove any procedures from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC into which the principal diagnosis is assigned.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not making any changes to the procedures assigned to MS-DRGs 981 through 983 or 987 through 989 for FY 2012.

b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 Through 986, and 987 Through 989

We also annually review the list of ICD-9-CM procedures that, when in combination with their principal diagnosis code, result in assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. procedure unrelated to principal diagnosis with MCC, with CC, or without CC/MCC, respectively), and 987 through 989, to ascertain whether any of those procedures should be reassigned from one of these three MS-DRGs to another of the three MS-DRGs based on average charges and the length of stay. We look at the data for trends such as shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical. If we find these shifts, we would propose to move cases to keep the MS-DRGs clinically similar or to provide payment for the cases in a similar manner. Generally, we move only those procedures for which we have an adequate number of discharges to analyze the data.

There were no cases representing shifts in treatment practice or reporting practice that would make the resulting MS-DRG assignment illogical, or that merited movement so that cases should logically be assigned to any of the other MDCs. Therefore, for FY 2012, we did not propose to move any procedure codes among these MS-DRGs.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not moving any procedures assigned to MS-DRGs 981 through 983, 984 through 986, and 987 through 989 for FY 2012.

c. Adding Diagnosis or Procedure Codes to MDCs

Based on the review of cases in the MDCs as described above in sections III.G.12.a. and b., we did not propose to add any diagnosis or procedure codes to MDCs for FY 2012.

We did not receive any public comments on our proposal. Therefore, as we proposed, we are not adding any diagnosis or procedure codes to MDCs for FY 2012.

13. Changes to the ICD-9-CM Coding System, Including Discussion of the Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD-10-PCS Systems in FY 2014
a. ICD-9-CM Coding System

As described in section II.B.1. of the preamble of this final rule, the ICD-9-CM is a coding system currently used for the reporting of diagnoses and procedures performed on a patient. In September 1985, the ICD-9-CM Coordination and Maintenance Committee was formed. This is a Federal interdepartmental committee, co-chaired by the National Center for Health Statistics (NCHS), the Centers for Disease Control and Prevention, and CMS, charged with maintaining and updating the ICD-9-CM system. The Committee is jointly responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD-9-CM to reflect newly developed procedures and technologies and newly identified diseases. The Committee is also responsible for promoting the use of Federal and non-Federal educational programs and other communication techniques with a view toward standardizing coding applications and upgrading the quality of the classification system.

The Official Version of the ICD-9-CM contains the list of valid diagnosis and procedure codes. (The Official Version of the ICD-9-CM is available from the Government Printing Office on CD-ROM for $19.00 by calling (202) 512-1800.) Complete information on ordering the CD-ROM is also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05_CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no longer available in printed manual form from the Federal Government; it is only available on CD-ROM. Users who need a paper version are referred to one of the many products available from publishing houses.

The NCHS has lead responsibility for the ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic Index for Diseases, while CMS has lead responsibility for the ICD-9-CM procedure codes included in the Tabular List and Alphabetic Index for Procedures.

The Committee encourages participation in the above process by health-related organizations. In this regard, the Committee holds public meetings for discussion of educational issues and proposed coding changes. These meetings provide an opportunity for representatives of recognized organizations in the coding field, such as the American Health Information Management Association (AHIMA), the American Hospital Association (AHA), and various physician specialty groups, as well as individual physicians, health information management professionals, and other members of the public, to contribute ideas on coding matters. After considering the opinions expressed at the public meetings and in writing, the Committee formulates recommendations, which then must be approved by the agencies.

The Committee presented proposals for coding changes for implementation in FY 2012 at a public meeting held on September 15-16, 2010 and finalized the coding changes after consideration of comments received at the meetings and in writing by November 19, 2010. Those coding changes were announced in Tables 6A through 6F, which were listed in section VI. of the Addendum to the proposed rule and available via the Internet.

The Committee held its 2011 meeting on March 9-10, 2011. New codes for which there was a consensus of public support and for which complete tabular and indexing changes were made by May 2011 are included in the October 1, 2011 update to ICD-9-CM. Code revisions that were discussed at the March 9-10, 2011 Committee meeting but that could not be finalized in time to include them in the tables listed in section VI. of the Addendum to the proposed rule are included in Tables 6A through 6F, which are listed in section VI. of the Addendum to this final rule and available via the Internet, and are marked with an asterisk (*).

Copies of the minutes of the procedure codes discussions at the Committee's September 15-16, 2010 meeting and March 9-10, 2011 meeting can be obtained from the CMS Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the diagnosis codes discussions at the September 15-16, 2010 meeting and March 9-10, 2011 meeting are found at: http://www.cdc.gov/nchs/icd.htm. These Web sites also provide detailed information about the Committee, including information on requesting a new code, attending a Committee meeting, and timeline requirements and meeting dates.

We encourage commenters to address suggestions on coding issues involvingdiagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo Road, Hyattsville, MD 20782. Comments may be sent by E-mail to: dfp4@cdc.gov.

Questions and comments concerning the procedure codes should be addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination and Maintenance Committee, CMS, Center for Medicare Management, Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent by E-mail to: patricia.brooks2@cms.hhs.gov.

The ICD-9-CM code changes that have been approved will become effective October 1, 2011. The new ICD-9-CM codes are listed, along with their MS-DRG classifications, in Tables 6A and 6B (New Diagnosis Codes and New Procedure Codes, respectively), which are listed in section VI. of the Addendum to this final rule and available via the Internet. As we stated above, the code numbers and their titles were presented for public comment at the ICD-9-CM Coordination and Maintenance Committee meetings. Both oral and written comments were considered before the codes were approved.

In the FY 2012 IPPS/LTCH PPS proposed rule, we solicited comments on the proposed classification of these new codes, which were shown in Tables 6A and 6B listed in section VI. of the Addendum to the proposed rule and available via the Internet.

Comment: Several commenters generally supported the proposed changes to the MS-DRG classifications. One commenter supported the non-CC designation for the following new diagnosis codes: 282.40 (Thalassemia, unspecified); 282.43 (Alpha thalassemia); code 282.44 (Beta thalassemia); 282.45 (Delta-beta thalassemia); 282.46 (Thalassemia minor); 282.47 (Hemoglobin E-beta Thalassemia); 516.31 (Idiopathic pulmonary fibrosis); 516.32 (Idiopathic non-specific interstitial pneumonitis); and 516.34 (Respiratory bronchiolitis interstitial lung disease). The commenter also supported the non-CC designation for and the assignment of code 573.5 (Hepatopulmonary syndrome) in MDC 4, MS-DRGs 205 and 206 (Other Respiratory System Diagnoses with and without MCC, respectively).

However, the commenter did not support the non-CC designation of code 294.21 (Dementia, unspecified, with behavioral disturbance). The commenter noted that a similar diagnosis with behavioral disturbance such as code 294.11 (Dementia in conditions classified elsewhere with behavioral disturbance) is designated as a CC and questioned why the same logic had not been considered for code 294.21.

Response: Our medical advisors agree with the commenter's assessment that diagnosis code 294.21 should qualify as a CC, similar to code 294.11. Both codes identify dementia with behavioral disturbance and use similar resource use. Therefore, in this final rule, we are changing the proposed non-CC designation for code 294.21 and classifying it as a CC in Table 6A. This change is reflected in Table 6A of this final rule which is available via the Internet on the CMS Web site.

Comment: One commenter did not support the non-CC designation for diagnosis code 414.4 (Coronary atherosclerosis due to calcified coronary lesion). The commenter stated that this code should be designated as a CC, the same designation assigned to diagnosis code 414.02 (Coronary atherosclerosis of autologous vein bypass graft) and diagnosis code 414.03 (Coronary atherosclerosis of nonautologous biological bypass graft).

Response: Our medical advisors do not agree with the commenter. According to our medical advisors, diagnosis code 414.4 is similar to code 414.01 (Coronary atherosclerosis of native coronary artery) which is not designated as a CC. Both codes indicate general atherosclerosis and are not similar to codes 414.02 and 414.03, which indicate atherosclerosis of an artery that has been replaced by graft. Therefore, we are not making any modifications to the proposed non-CC designation for code 414.4.

Comment: One commenter supported the CC designation for the following diagnosis codes: 425.11(Hypertrophic obstructive cardiomyopathy); 425.18 (Other hypertrophic cardiomyopathy); 512.2 (Postoperative air leak); 512.81 (Primary spontaneous pneumothorax); 512.82 (Secondary spontaneous pneumothorax); 512.83 (Chronic pneumothorax); 512.84 (Other air leak); 512.89 (Other pneumothorax); 516.35 (Idiopathic lymphoid interstitial pneumonia); 516.36 (Cryptogenic organizing pneumonia); and 516.37 (Desquamative interstitial pneumonia). Some commenters supported the CC designations for code 998.00 (Postoperative shock, unspecified).

One commenter representing a national medical specialty society for neurology supported our proposed CC designations for codes 358.30 (Lambert-Eaton syndrome, unspecified); 358.31 (Lambert-Eaton syndrome in neoplastic disease); and 358.39 (Lambert-Eaton syndrome in other diseases classified elsewhere). The commenter stated that Lambert-Eaton syndrome is increasingly diagnosed and not always a paraneoplastic syndrome.

One commenter supported the CC designation for code 348.82 (Brain death), while another commenter did not support this proposed designation. The commenter that did not support the proposal stated that this code should be designated as an MCC.

Response: Our medical advisors agree with the commenter that code 348.82 should be designated as a MCC because this diagnosis requires extensive intensive care resources. Therefore, in this final rule, we are amending the proposed CC designation of code 348.82 (Brain death) to MCC for FY 2012 in Table 6A. This change is reflected in Table 6A in this final rule which is available via the Internet on the CMS Web site.

Comment: One commenter did not support the CC designation for code 516.30 (Idiopathic interstitial pneumonia, not other specified). The commenter did not see the differences among codes 516.30, 516.31 (Idiopathis pulmonary fibrosis), and 516.32 (Idiopathic nonspecific interstitial pneumonitis), recognizing that the nonspecific code is designated as a CC while the more specific codes are not designated as CCs.

Response: We agree with the commenter that code 516.30 should not be designated as a CC because this code identifies an unspecified pneumonia which is more reflective of a non-CC. Therefore, in this final rule, we are amending the proposed CC designation for of code 516.30 (Idiopathic interstitial pneumonia, not other specified) to non-CC for FY 2012 in Table 6A. This change is reflected in Table 6A, which, for this final rule, is available via the Internet on the CMS Web site.

Comment: Several commenters supported the MCC designation for the following diagnosis codes: 284.11 (Antineoplastic chemotherapy induced pancytopenia); 284.12 (Other drug induced pancytopenia); 488.81(Influenza due to identified novel influenza A virus with pneumonia); 998.01 (Postoperative shock, cardiogenic); 998.02 (Postoperative shock, septic); and 998.09 (Postoperative shock, other). In addition, one commenter supported the MCC designation for the following diagnosis codes: 518.51 (Acute respiratory failure following trauma and surgery); 518.52 (Other pulmonary insufficiency, not elsewhere classified);and 518.53 (Acute and chronic respiratory failure following trauma and surgery).

Response: We appreciate the commenters' support.

Comment: One commenter representing a national organization for orthopedic surgeons did not support the proposed MCC designation for diagnosis code 415.13 (Saddle embolus of pulmonary artery). The commenter stated that this designation is clinically inaccurate as a saddle embolus is a subcategory of deep vein thrombosis/pulmonary embolism.

Response: Our medical advisors do not agree with the commenter's assessment that this diagnosis code does not warrant an MCC designation. The diagnosis of saddle embolus is life-threatening, requiring intensive care resources. Therefore, we are not making any modifications to the proposed MCC designation for code 415.13. We point out that diagnosis codes 415.11 (Iatrogenic pulmonary embolism and infarction), 415.12 (Septic pulmonary embolism) and 415.19 (Other Pulmonary embolism and infarction) are designated as MCCs.

Comment: One commenter suggested that, as new codes are added to the MS-DRG classification, the new codes be assigned to the same MS-DRG classification as its predecessor code.

Response: CMS' longstanding practice has been, where possible, to assign new ICD-9-CM codes to the same MS-DRGs(s) as their predecessor code.

Comment: One commenter supported the proposed MS-DRG assignment to MS-DRG 264 (Other Circulatory System O.R. Procedures) for procedure code 38.26 (Insertion of implantable pressure sensor without lead for intracardiac or great vessel hemodynamic monitoring). Another commenter supported the surgical classification of procedure code 68.24 (Uterine artery embolization [UAE] with coils) and code 68.25 (Uterine artery embolization [UAE] without coils).

Response: We appreciate the support of the commenters.

For codes that have been replaced by new or expanded codes, the corresponding new or expanded diagnosis codes are included in Table 6A, which is listed in section VI. of the Addendum to this final rule and available via the Internet. New procedure codes are shown in Table 6B, which is listed in section VI. of the Addendum to this final rule and available via the Internet. Diagnosis codes that have been replaced by expanded codes or other codes or have been deleted are in Table 6C (Invalid Diagnosis Codes), which is listed in section VI. of the Addendum to this final rule and available via the Internet. These invalid diagnosis codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2011. Table 6D, which is listed in section VI. of the Addendum to this final rule and available via the Internet, contains invalid procedure codes. These invalid procedure codes will not be recognized by the GROUPER beginning with discharges occurring on or after October 1, 2011. Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis Code Titles), which is listed in section VI. of the Addendum to this final rule and available via the Internet, and also includes the MS-DRG assignments for these revised codes. Table 6F, which is listed in section VI. of the Addendum to this final rule and available via the Internet includes revised procedure code titles for FY 2012.

In the September 7, 2001 final rule implementing the IPPS new technology add-on payments (66 FR 46906), we indicated we would attempt to include proposals for procedure codes that would describe new technology discussed and approved at the Spring meeting as part of the code revisions effective the following October. As stated previously, ICD-9-CM codes discussed at the March 9-10, 2011 Committee meeting that received consensus and that were finalized by May 2011 are included in Tables 6A through 6F, which are listed in section VI. of the Addendum to this final rule and available via the Internet.

Section 503(a) of Public Law 108-173 included a requirement for updating ICD-9-CM codes twice a year instead of a single update on October 1 of each year. This requirement was included as part of the amendments to the Act relating to recognition of new technology under the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by adding a clause (vii) which states that the “Secretary shall provide for the addition of new diagnosis and procedure codes on April 1 of each year, but the addition of such codes shall not require the Secretary to adjust the payment (or diagnosis-related group classification) * * * until the fiscal year that begins after such date.” This requirement improves the recognition of new technologies under the IPPS system by providing information on these new technologies at an earlier date. Data will be available 6 months earlier than would be possible with updates occurring only once a year on October 1.

While section 1886(d)(5)(K)(vii) of the Act states that the addition of new diagnosis and procedure codes on April 1 of each year shall not require the Secretary to adjust the payment, or DRG classification, under section 1886(d) of the Act until the fiscal year that begins after such date, we have to update the DRG software and other systems in order to recognize and accept the new codes. We also publicize the code changes and the need for a mid-year systems update by providers to identify the new codes. Hospitals also have to obtain the new code books and encoder updates, and make other system changes in order to identify and report the new codes.

The ICD-9-CM Coordination and Maintenance Committee holds its meetings in the spring and fall in order to update the codes and the applicable payment and reporting systems by October 1 of each year. Items are placed on the agenda for the ICD-9-CM Coordination and Maintenance Committee meeting if the request is received at least 2 months prior to the meeting. This requirement allows time for staff to review and research the coding issues and prepare material for discussion at the meeting. It also allows time for the topic to be publicized in meeting announcements in theFederal Registeras well as on the CMS Web site. The public decides whether or not to attend the meeting based on the topics listed on the agenda. Final decisions on code title revisions are currently made by March 1 so that these titles can be included in the IPPS proposed rule. A complete addendum describing details of all changes to ICD-9-CM, both tabular and index, is published on the CMS and NCHS Web sites in May of each year. Publishers of coding books and software use this information to modify their products that are used by health care providers. This 5-month time period has proved to be necessary for hospitals and other providers to update their systems.

A discussion of this timeline and the need for changes are included in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance Committee minutes. The public agreed that there was a need to hold the fall meetings earlier, in September or October, in order to meet the new implementation dates. The public provided comment that additional time would be needed to update hospital systems and obtain new code books and coding software. There was considerable concern expressed about the impact this new April update would have on providers.

In the FY 2005 IPPS final rule, we implemented section 1886(d)(5)(K)(vii) of the Act, as added by section 503(a)of Public Law 108-173, by developing a mechanism for approving, in time for the April update, diagnosis and procedure code revisions needed to describe new technologies and medical services for purposes of the new technology add-on payment process. We also established the following process for making these determinations. Topics considered during the Fall ICD-9-CM Coordination and Maintenance Committee meeting are considered for an April 1 update if a strong and convincing case is made by the requester at the Committee's public meeting. The request must identify the reason why a new code is needed in April for purposes of the new technology process. The participants at the meeting and those reviewing the Committee meeting summary report are provided the opportunity to comment on this expedited request. All other topics are considered for the October 1 update. Participants at the Committee meeting are encouraged to comment on all such requests. There were no requests approved for an expedited April l, 2011 implementation of an ICD-9-CM code at the September 15-16, 2010 Committee meeting. Therefore, there were no new ICD-9-CM codes implemented on April 1, 2011.

Current addendum and code title information is published on the CMS Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along with the Official ICD-9-CM Coding Guidelines, can be found on the Web site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, and deleted ICD-9-CM codes is also provided to the AHA for publication in the Coding Clinic for ICD-9-CM. AHA also distributes information to publishers and software vendors.

CMS also sends copies of all ICD-9-CM coding changes to its Medicare contractors for use in updating their systems and providing education to providers.

These same means of disseminating information on new, revised, and deleted ICD-9-CM codes will be used to notify providers, publishers, software vendors, contractors, and others of any changes to the ICD-9-CM codes that are implemented in April. The code titles are adopted as part of the ICD-9-CM Coordination and Maintenance Committee process. Thus, although we publish the code titles in the IPPS proposed and final rules, they are not subject to comment in the proposed or final rules. We will continue to publish the October code updates in this manner within the IPPS proposed and final rules. For codes that are implemented in April, we will assign the new procedure code to the same MS-DRG in which its predecessor code was assigned so there will be no MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates will be available through the Web sites indicated above and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources in order to update their code books and software systems. We will strive to have the April 1 updates available through these Web sites 5 months prior to implementation (that is, early November of the previous year), as is the case for the October 1 updates.

b. Code Freeze

The International Classification of Diseases, 10th Revision (ICD-10) coding system applicable to hospital inpatient services will be implemented on October 1, 2013, as described in the Health Insurance Portability and Accountability Act (HIPAA) Administrative Simplification: Modifications to Medical Data code Set Standards to Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362, January 16, 2009). The ICD-10 coding system includes the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding and the International Classification of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure coding, as well as the Official ICD-10-CM and ICM-10-PCS Guidelines for Coding and Reporting. In the January 16, 2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362), there was a discussion of the need for a partial or total freeze in the annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The public comment addressed in that final rule stated that the annual code set updates should cease l year prior to the implementation of ICD-10. The commenters stated that this freeze of code updates would allow for instructional and/or coding software programs to be designed and purchased early, without concern that an upgrade would take place immediately before the compliance date, necessitating additional updates and purchases.

We responded to comments in the ICD-10 final rule that the ICD-9-CM Coordination and Maintenance Committee has jurisdiction over any action impacting the ICD-9-CM and ICD-10 code sets. Therefore, we indicated that the issue of consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM and ICD-10-PCS would be addressed through the Committee at a future public meeting.

The code freeze was discussed at multiple meetings of the ICD-9-CM Coordination and Maintenance Committee and public comment was actively solicited. The Committee evaluated all comments from participants attending the Committee meetings as well as written comments that were received. There was an announcement at the September 15-16, 2010 ICD-9-CM Coordination and Maintenance Committee meeting that a partial freeze of both ICD-9-CM and ICD-10 codes would be implemented as follows:

  • The last regular annual update to both ICD-9-CM and ICD-10 code sets will be made on October 1, 2011.
  • On October 1, 2012, there will be only limited code updates to both ICD-9-CM and ICD-10 code sets to capture new technology and new diseases.
  • There will be no updates to ICD-9-CM on October 1, 2013, as the system will no longer be a HIPAA standard. There will be only limited code updates to ICD-10 code sets on October 1, 2013, to capture new technology and new diseases.
  • On October 1, 2014, regular updates to ICD-10 will begin.

The ICD-9-CM Coordination and Maintenance Committee announced that it would continue to meet twice a year during the freeze. At these meetings, the public will be encouraged to comment on whether or not requests for new diagnosis and procedure codes should be created based on the need to capture new technology and new diseases. Any code requests that do not meet the criteria will be evaluated for implementation within ICD-10 on or after October 1, 2014, once the partial freeze is ended.

Complete information on the partial code freeze and discussions of the issues at the Committee meetings can be found on the ICD-9-CM Coordination and Maintenance Committee Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03. A summary of the September 15-16, 2010 Committee meeting, along with both written and audio transcripts of this meeting, are posted on the “Download” section of this Web page.

Comment: Several commenters supported the partial code freeze. The commenters stated that the partial freeze was needed to allow providers time to prepare for the implementation of ICD-10 and the accompanying system and product updates.

Response: We appreciate the commenters' support. We agree with the commenters that the partial code freeze will be useful in providing a greater opportunity to focus on ICD-10 implementation issues.

c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital Inpatient Claims

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50127), we discussed that we had received repeated requests from the hospital community to process all 25 diagnosis codes and 25 procedure codes submitted on electronic hospital inpatient claims. Prior to January 1, 2011, hospitals could submit up to 25 diagnoses and 25 procedures; however, CMS' system limitations allowed for the processing of only the first 9 diagnoses and 6 procedures. We indicated in that final rule that, as part of our efforts to update Medicare systems prior to the implementation of ICD-10 on October 1, 2013, we were undergoing extensive system updates as part of the move to 5010, which includes the ability to accept ICD-10 codes. This complicated transition involved converting many internal systems prior to October 1, 2013, when ICD-10 will be implemented. We stated that, as one important step in this planned conversion process, we were planning to complete the expansion of our internal system capability so that we are able to process up to 25 diagnoses and 25 procedures on hospital inpatient claims as part of the HIPAA ASC X12 Technical Reports Type 3, Version 005010 (Version 5010) standards system update. We have completed this expansion, and, as a result, we were able to process up to 25 diagnosis codes and 25 procedure codes when received on the 5010 format starting on January 1, 2011. (We note that we made a typographical error in the proposed rule (76 FR 25843) and indicated that “we have not completed this expansion.” This error was pointed out to us by several commenters. We corrected this typographical error in a correction notice issued in theFederal Registeron June 14, 2011 (76 FR 24633).) We continue to recognize the value of the additional information provided by this coded data for multiple uses such as for payment, quality measures, outcome analysis, and other important uses. We will continue to process up to 25 diagnosis codes and 25 procedure codes when received on the 5010 format.

d. ICD-10 MS-DRGs

In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received comments on the creation of the ICD-10 version of the MS-DRGs, which will be implemented on October 1, 2013 (FY 2014) when we implement the reporting of ICD-10 codes (75 FR 50127 and 50128). While we did not propose an ICD-10 version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we noted that we have been actively involved in converting our current MS-DRGs from ICD-9-CM codes to ICD-10 codes and sharing this information through the ICD-9-CM Coordination and Maintenance Committee. We undertook this early conversion project to assist other payers and providers in understanding how to go about their own conversion projects. We posted ICD-10 MS-DRGs based on V26.0 (FY 2009) of the MS-DRGs. We also posted a paper that describes how CMS went about completing this project and suggestions for others to follow. All of this information can be found on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. We have continued to keep the public updated on our maintenance efforts for ICD-10-CM and ICD-10-PCS coding systems as well as the General Equivalence Mappings that assist in conversion through the ICD-9-CM Coordination and Maintenance Committee. Information on these committee meetings can be found at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.

During FY 2011, we developed and posted Version 28.0 of the ICD-10 MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-10 MS-DRG Version 28.0 also includes the CC Exclusion List and the ICD-10 version of the hospital acquired conditions (HACs), which was not posted with Version 26.0. We also discussed this update at the September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM Coordination and Maintenance Committee. The minutes of these two meetings are posted on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. We will continue to work with the public to explain how we are approaching the conversion of MS-DRGs to ICD-10 and will post drafts of updates as they are developed for public review. The final version of the ICD-10 MS-DRGs to be implemented in FY 2014 will be subject to notice and comment rulemaking. In the meantime, we will provide extensive and detailed information on this activity through the ICD-9-CM Coordination and Maintenance Committee.

14. Other Issues
a. O.R./Non-O.R. Status of Procedures
(1) Brachytherapy Code

We received a request that we add ICD-9-CM procedure code 92.27 (Implantation or Insertion of Radioactive Elements) [Brachytherapy] into 41 MS-DRGs that are listed below:

  • 129 (Major Head and Neck Procedures with CC/MCC or Major Device)
  • 130 (Major Head and Neck Procedures without CC/MCC)
  • 163 (Major Chest Procedures with MCC)
  • 164 (Major Chest Procedures with CC)
  • 165 (Major Chest Procedures without CC/MCC)
  • 180 (Respiratory Neoplasms with MCC)
  • 181 (Respiratory Neoplasms with CC)
  • 182 (Respiratory Neoplasms without CC/MCC)
  • 326 (Stomach, Esophageal and Duodenal Procedures with MCC)
  • 327 (Stomach, Esophageal and Duodenal Procedures with CC)
  • 328 (Stomach, Esophageal and Duodenal Procedures without CC/MCC)
  • 329 (Major Small and Large Bowel Procedures with MCC)
  • 330 (Major Small and Large Bowel Procedures with CC)
  • 331 (Major Small and Large Bowel Procedures without CC/MCC)
  • 332 (Rectal Resection with MCC)
  • 333 (Rectal Resection with CC)
  • 334 (Rectal Resection without CC/MCC)
  • 344 (Minor Small and Large Bowel Procedures with MCC)
  • 345 (Minor Small and Large Bowel Procedures with CC)
  • 346 (Minor Small and Large Bowel Procedures without CC/MCC)
  • 347 (Anal and Stomal Procedures with MCC)
  • 348 (Anal and Stomal Procedures with CC)
  • 349 (Anal and Stomal Procedures without CC/MCC)
  • 405 (Pancreas, Liver and Shunt Procedures with MCC)
  • 406 (Pancreas, Liver and Shunt Procedures with CC)
  • 407 (Pancreas, Liver and Shunt Procedures without CC/MCC)
  • 490 (Back and Neck Procedures Except Spinal Fusion with CC/MCC or Disc Device/Neurostimulator)
  • 491 (Back and Neck Procedures Except Spinal Fusion without CC/MCC)
  • 500 (Soft Tissue procedures with MCC)
  • 501 (Soft Tissue procedures with CC)
  • 502 (Soft Tissue procedures without CC/MCC)
  • 584 (Breast Biopsy, Local Excision and Other Breast Procedures with CC/MCC)
  • 585 (Breast Biopsy, Local Excision and Other Breast Procedures without CC/MCC)
  • 597 (Malignant Breast Disorders with MCC)
  • 598 (Malignant Breast Disorders with CC)
  • 599 (Malignant Breast Disorders without CC/MCC)
  • 653 (Major Bladder Procedures with MCC)
  • 654 (Major Bladder Procedures with CC)
  • 655 (Major Bladder Procedures without CC/MCC)
  • 656 (Kidney and Ureter Procedures for Neoplasm with MCC)
  • 657 (Kidney and Ureter Procedures for Neoplasm with CC)
  • 658 (Kidney and Ureter Procedures for Neoplasm without CC/MCC)
  • 662 (Minor Bladder Procedures with MCC)
  • 663 (Minor Bladder Procedures with CC)
  • 664 (Minor Bladder Procedures without CC/MCC)
  • 668 (Transurethral Procedures with MCC)
  • 669 (Transurethral Procedures with CC)
  • 670 (Transurethral Procedures without CC/MCC)
  • 671 (Urethral Procedures with CC/MCC)
  • 672 (Urethral Procedures without CC/MCC)
  • 707 (Major Male Pelvic Procedures with CC/MCC)
  • 708 (Major Male Pelvic Procedures without CC/MCC)
  • 736 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC)
  • 737 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with CC)
  • 738 (Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy without CC/MCC)
  • 739 (Uterine and Adnexa Procedures for Nonovarian or Adnexal Malignancy with MCC)
  • 740 (Uterine and Adnexa Procedures for Nonovarian or Adnexal Malignancy with CC)
  • 741 (Uterine and Adnexa Procedures for Nonovarian or Adnexal Malignancy without CC/MCC)
  • 746 (Vagina, Cervix and Vulva Procedures with CC/MCC)
  • 747 (Vagina Cervix and Vulva Procedures without CC/MCC)
  • 748 (Female Reproductive System Reconstructive Procedures)
  • 749 (Other Female Reproductive System O.R. Procedures with CC/MCC)
  • 750 (Other Female Reproductive System O.R. Procedures without CC/MCC)

For the FY 2012 IPPS/LTCH PPS proposed rule, we examined MedPAR claims data on this request and only found 150 cases throughout these MS-DRGs. Our findings are presented in the table below.

MS-DRG with Code 92.27DRGNumber of casesAverage length of stayAverage costsMS-DRG without Code 92.27Number of casesAverage length of stayAverage costs
12966.67$15,7931,3265.35$14,400
13021.007,5879042.787,860
163178.1824,16611,87113.9031,860
164525.9417,50516,4877.1316,865
165412.9510,6389,2604.2711,754
18000019,3047.3711,396
18100022,2055.308,014
1820002,3653.595,580
32600010,32115.4835,437
32714.009,3029,6718.6717,889
3280008,4613.499,161
329124.0037,65441,10715.1033,003
33029.0020,04353,5848.9116,736
33100022,1055.1310,654
332148.0061,1691,43913.4029,727
333110.0011,4464,4947.8616,008
334116.0027,3122,8554.7610,518
34400075611.3021,590
3450002,9066.6711,190
3460002,3314.527,757
3470001,4308.8016,644
3480003,9755.409,326
3490003,5122.755,311
40518.008,4443,94015.4535,970
406210.5023,2314,7497.8317,333
4070001,7998.0412,148
49000019,8404.2411,940
49100038,5742.056,794
5000001,93510.8620,600
50157.0012,8964,9615.7710,256
50257.4013,8765,0092.786,844
5840007905.3211,126
5850001,3182.127,283
5970005327.4110,990
5980001,3695.327,624
5990001653.264,368
6531,58916.3435,856
6543,5029.1319,367
6550001,1215.53413,162
656120.0077,7373,11010.0024,022
6570007,8855.6313,345
6580006,1503.259,718
66200076310.2119,455
6630001,8182.189,729
6640002,7051.867,457
66823.503,9722,9088.9916,852
66946.507,83213,7764.258,398
67021.505,6397,3212.245,158
6710007465.459,778
6720006132.315,575
7070004,7194.2612,080
70813.0011,25214,3291.808,572
73600077513.1829,827
73716.0013,0452,8446.4913,348
7380006423.477,966
73900079010.1823,070
7400003,9144.3410,214
74111.003,2254,9172.317,438
7460002,2823.978,504
7470006,2431.725,995
74800014,6821.676,285
7490009208.5816,781
7500002852.887,116

The numbers of cases in any of the MS-DRGs listed were minimal. Many of the MS-DRGs listed had no occurrences of procedure code 92.27. The highest number of cases found was 52, in MS-DRG 164 (Major Chest Procedures with CC). Based on these findings, we do not believe that making a MS-DRG change based on such a minimal number of cases can be justified. Therefore, for FY 2012, we did not propose to add procedure code 92.27 to any of the 41 MS-DRGs listed above. Further, we did not propose any MS-DRG changes for procedure code 92.27. We welcomed public comment on our proposal not to make changes to procedure code 92.27.

Comment: Several commenters supported our proposal to not add procedure code 92.27 to any of the 41 MS-DRGs listed above and to not propose any MS-DRG changes for procedure code 92.27.

Response: We appreciate the commenters' support.

After consideration of the public comments we received, as we proposed, we are not adding procedure code 92.27 to any of the 41 MS-DRGs listed above and are not making any MS-DRG changes for procedure code 92.27 for FY 2012.

(2) Intraoperative Electron Radiation Therapy (IOERT)

We received a public comment that was outside of the scope of the FY 2011 IPPS/LTCH PPS proposed rule regarding the MS-DRG assignment for intraoperative electron radiation therapy (IOERT). This issue was discussed briefly in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50128). However, we addressed this issue in the FY 2012 IPPS/LTCH PPS rulemaking. IOERT is the direct application of radiation to a tumor and/or tumor bed while the patient is undergoing surgery for cancer. This technology may be used for cancers of the rectum, head/neck, pancreas, lung, genitourinary, soft tissue, and breast. IOERT is a secondary procedure performed during the primary tumor removal surgery.

The commenter requested that CMS update the MS-DRG assignments for procedure code 92.41 (Intraoperative electron radiation therapy) to ensure that the cost of this technology is captured in each MS-DRG involving tumor removal in the rectum, head/neck, pancreas, lung, genitourinary, soft tissue, and breast. Currently, this code is not assigned to a specific MS-DRG as the primary procedure performed, the tumor removal, would determine the appropriate MS-DRG assignment.

The commenter provided a recommended list of MS-DRGs to which IOERT should be assigned:

MS-DRGDescription
129Major Head and Neck Procedures with CC/MCC or Major Device.
130Major Head and Neck Procedures without CC/MCC.
133Other Ear, Nose, Mouth and Throat O,R, Procedures with CC/MCC.
134Other Ear, Nose, Mouth and Throat O.R. Procedures without CC/MCC.
163Major Chest Procedures with MCC.
164Major Chest Procedures with CC.
165Major Chest Procedures without CC/MCC.
166Other Respiratory System O.R. Procedures with MCC.
167Other Respiratory System O.R. Procedures with CC.
168Other Respiratory System O.R. Procedures without CC/MCC.
326Stomach, Esophageal and Duodenal Procedures with MCC.
327Stomach, Esophageal and Duodenal Procedures with CC.
328Stomach, Esophageal and Duodenal Procedures without CC/MCC.
329Major Small and Large Bowel Procedures with MCC.
330Major Small and Large Bowel Procedures with CC.
331Major Small and Large Bowel Procedures without CC/MCC.
332Rectal Resection with MCC.
333Rectal Resection with CC.
334Rectal Resection without CC/MCC.
344Minor Small and Large Bowel Procedures with MCC.
345Minor Small and Large Bowel Procedures with CC.
346Minor Small and Large Bowel Procedures without CC/MCC.
347Anal and Stomal Procedures with MCC.
348Anal and Stomal Procedures with CC.
349Anal and Stomal Procedures without CC/MCC.
356Other Digestive System O.R. Procedures with MCC.
357Other Digestive System O.R. Procedures with CC.
358Other Digestive System O.R. Procedures without CC/MCC.
405Pancreas, Liver and Shunt Procedures with MCC.
406Pancreas, Liver and Shunt Procedures with CC.
407Pancreas, Liver and Shunt Procedures without CC/MCC.
490Back and Neck Procedures Except Spinal Fusion with CC/MCC.
491Back and Neck Procedures Except Spinal Fusion without CC/MCC.
500Soft Tissue Procedures with MCC.
501Soft Tissue Procedures with CC.
502Soft Tissue Procedures without CC/MCC.
579Other Skin, Subcutaneous Tissue and Breast Procedures with MCC.
580Other Skin, Subcutaneous Tissue and Breast Procedures with CC.
581Other Skin, Subcutaneous Tissue and Breast Procedures without CC/MCC.
584Breast Biopsy, Local Excision and Other Breast Procedures with CC/MCC.
585Breast Biopsy, Local Excision and Other Breast Procedures without CC/MCC.
653Major Bladder Procedures with MCC.
654Major Bladder Procedures with CC.
655Major Bladder Procedures without CC/MCC.
656Kidney and Ureter Procedures For Neoplasm with MCC.
657Kidney and Ureter Procedures For Neoplasm with CC.
658Kidney and Ureter Procedures for Neoplasm without MCC/CC.
662Minor Bladder Procedures with MCC.
663Minor Bladder Procedures with CC.
664Minor Bladder Procedures without CC/MCC.
668Transurethral Procedures with MCC.
669Transurethral Procedures with CC.
670Transurethral Procedures without CC/MCC.
671Urethral Procedures with CC/MCC.
672Urethral Procedures without CC/MCC.
707Major Male Pelvic Procedures with CC/MCC.
708Major Male Pelvic Procedures without CC/MCC.
715Other Male Reproductive System O.R. Procedures For Malignancy with CC/MCC.
716Other Male Reproductive System O.R. Procedures For Malignancy without CC/MCC.
736Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC.
737Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy with CC.
738Uterine and Adnexa Procedures for Ovarian or Adnexal Malignancy without CC/MCC.
739Uterine and Adnexa Procedures for Nonovarian or Adnexal Malignancy with MCC.
740Uterine and Adnexa Procedures for Nonovarian or Adnexal Malignancy with CC.
741Uterine and Adnexa Procedures for Nonovarian or Adnexal Malignancy without CC/MCC.
746Vagina, Cervix and Vulva Procedures with CC/MCC.
747Vagina Cervix and Vulva Procedures without CC/MCC.
748Female Reproductive System Reconstructive Procedures.
749Other Female Reproductive System O.R. Procedures with CC/MCC.
750Other Female Reproductive System O.R. Procedures without CC/MCC.

For the FY 2012 IPPS/LTCH PPS proposed rule, based on our review of the FY 2010 MedPAR claims data, we found a total of 12 cases with procedure code 92.41 reported. There were three cases assigned to MS-DRG 502; two cases each assigned to two different MS-DRGs: MS-DRG 333 and MS-DRG 501; and one case assigned each to five MS-DRGs: MS-DRGs 130, 168, 327, 329, and 330.

The IOERT cases were assigned to an MS-DRG that included the tumor removal of that particular site, which was listed on the table above. Therefore, the cost of this technology is appropriately identified in the MS-DRG assignment for the removal of the tumor by specific site, and no change is warranted at this time. Therefore, we did not propose any changes to the assignment for IOERT cases for FY 2012. We invited public comment on our proposal to not change the assignment for IOERT cases for FY 2012.

Comment: Several commenters supported our proposal to not make any MS-DRG modifications for FY 2012 for IOERT cases reported with procedure code 92.41.

Response: We appreciate the commenters' support. Based on our findings, these cases are appropriately assigned to the MS-DRG for the removal of the tumor by specific site and warrant no further modification.

After consideration of the public comments we received, we are finalizing our proposal to not make any MS-DRG modifications for FY 2012 for intraoperative electron radiation therapy cases.

b. IPPS Recalled Device Policy Clarification

In the FY 2008 IPPS final rule with comment period (72 FR 47246 through 47251), we discussed the topic of Medicare payment for devices that are replaced without cost or where credit for a replaced device is furnished to the hospital. We implemented a policy to reduce a hospital's IPPS payment for certain MS-DRGs where the implantation of a device that has been recalled determined the base MS-DRG assignment. At that time, we specified that we would reduce a hospital's IPPS payment for those MS-DRGs where the hospital received a credit equal to 50 percent or more of the cost of the device when a manufacturer provided a credit for a recalled device.

A similar policy was adopted under the Hospital Outpatient Prospective Payment System (OPPS) in CY 2008 (the “partial credit” policy). This policy can be viewed in its entirety at 72 FR 66743 though 66748. In general terms, under the partial credit policy, CMS reduces the amount of payment for an implanted device made under the OPPS for which CMS determines that a significant portion of the payment is attributable to the cost of an implanted device when the provider receives partial credit for the cost of a replaced device, but only where the amount of the device credit is greater than or equal to 50 percent of the cost of the new replacement device being implanted.

It came to our attention that there is a discrepancy between the IPPS policy and the OPPS partial credit policy for replacement devices. In particular, the OPPS partial credit policy specifies that the credit must be 50 percent or greater of the cost of the replacement device. However, the IPPS policy does not specify whether the credit should be 50 percent or greater of the replacement device or the original device. We believe that the OPPS partial credit policy and the IPPS policy should be consistent with each other on the issue of whether the 50 percent or more credit is with respect to the replacement device or the original device. Therefore, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to clarify the IPPS policy to state that the policy applies where “the hospital received a credit equal to 50 percent or more of the cost of the replacement device.” We invited public comment on this proposal.

Comment: Several commenters approved of parallel policies for recalleddevice credit for both the inpatient setting and the outpatient hospital setting.

Response: We appreciate the commenters' support.

Comment: One commenter suggested additional clarifications. The commenter recommended that CMS reconcile condition codes 49 and 50 with the “FB” and “FC” modifiers from OPPS to include devices obtained at reduced or no cost for reasons other than those currently specified in condition codes 49 and 50. Condition code 49 addresses “product replacement within product lifecycle” while condition code 50 covers “product replacement for known recall of a product.” The commenter stated that, as currently defined, these two condition codes do not represent all of the reasons that devices are obtained at reduced or no cost and, therefore, create confusion as to when the device credit policy applies. The commenter added that, by comparison, in OPPS, modifier “FB” covers “devices that are obtained at no cost to the provider” and modifier “FC” covers “partial credit received for replaced device.” Further, the commenter stated, the definitions of the “FB” and “FC” modifiers denote whether the replacement device was obtained at no cost or reduced cost, and generally reflect all situations when the device credit policy would apply. As part of the clarification, the commenter suggested that CMS further explain whether value code “FD” as well as modifiers “FB” and “FC” are for “replacement” devices only.

Response: We are not clear about the clarifications suggested by the commenter. The OPPS modifier “-FB” (Item Provided without Cost to Provider, Supplier or Practitioner) can be used to describe an item provided under warranty, replaced due to defect, or provided as a free sample. OPPS modifier “-FC” (Partial Credit Received for Replaced Device) describes cases in which the hospital receives a partial credit of 50 percent or more of the cost of a new replacement device under warranty, recall, or field action.

Value code “FD” is used for Medicare Part A reporting of replacement devices. Hospitals must use the combination of condition code 49 or 50, described above, along with value code “FD” to correctly bill for a replacement device that was provided with a credit or no cost. Condition code 49 or 50 identifies a replacement device while value code “FD” communicates to Medicare the amount of the credit, or cost reduction, received by the hospital for the replaced device. We do not believe that hospitals find these reporting requirements confusing. Regardless of the actual reason that a device is provided at no cost to a hospital or an ambulatory surgical center (ASC), the end result is that neither the hospital nor the ASC is incurring the full cost of the device, although the Medicare payment is calculated based on the full cost of the device.

Comment: One commenter pointed out that the FY 2009 IPPS/LTCH PPS final rule (73 FR 48496) finalized an MS-DRG change by removing several procedure codes for AICD leads from MS-DRG 245 as well as revising the title of that MS-DRG to read “AICD Generator Procedures”. New MS-DRG 265 (AICD Lead Procedures) was also created and included the AICD lead procedure codes that were transferred from MS-DRG 245. The commenter pointed out that CMS has not issued a new table through its transmittal process indicating that MS-DRG 265 should also be included in the list of MS-DRGs that are subject to the device recall policy.

Response: We are aware of this oversight and have begun the process to create an updated Change Request to address this issue. We expect to issue the Change Request shortly.

Comment: One commenter suggested that no-charge devices should be removed from the calculation of MS-DRG relative weights.

Response: We appreciate this comment, but we point out that no-charge devices are not reported on claims. Therefore, charges for the device have not been included in the computation of the MS-DRG relative weights.

After consideration of the public comments we received, we are finalizing our proposed clarification of the IPPS recalled device policy to state that the policy applies where “the hospital received a credit equal to 50 percent or more of the cost of the replacement device,” and we will issue instructions to hospitals accordingly.

15. Public Comments on Issues Not Addressed in the Proposed Rule

We received a number of public comments regarding MS-DRG issues that were outside the scope of the proposals included in the FY 2012 IPPS/LTCH PPS proposed rule. We have summarized these public comments below. However, because these public comments were outside of the scope of the proposed rule, we are not addressing them in this final rule. As stated in section II.B.2. of this preamble, we encourage individuals with comments about MS-DRG classifications to submit these comments no later than December of each year so they can be considered for possible inclusion in the annual proposed rule and, if included, may be subjected to public review and comment. We will consider these comments for possible proposals in future rulemaking as part of our annual review process.

Commenters requested that CMS create new MS-DRGs for (1) disorders of porphyrin metabolism and (2) related and unrelated allogeneic bone marrow transplants. The commenters also requested that CMS create a new MS-DRG that would distinguish between ventricular assist device (VAD) implantation and heart transplants.

Commenters requested that CMS evaluate the non-CC, CC, or MCC designation of the following codes:

  • 263.0 (Malnutrition of moderate degree)
  • 263.1 (Malnutrition of mild degree)
  • 263.9 (Unspecified protein-calorie malnutrition)
  • 285.3 (Antineoplastic chemotherapy induced anemia)
  • 425.4-425.9 (Cardiomyopathy)
  • 428.0 (Heart failure, unspecified)
  • 707.25 (Pressure ulcer, unstageable)

One commenter recommended that CMS consider the reassignment of cases of patients diagnosed with influenza with pneumonia and who also have secondary diagnoses that would otherwise qualify the assignment of the cases to MS-DRGs 177 (Respiratory Infections and Inflammations with MCC), 178 (Respiratory Infections and Inflammations with CC), and 179 (Respiratory Infections and Inflammations without MCC/CC). The commenter recommended these cases be reassigned from MS-DRGs 193 (Simple Pneumonia and Pleurisy with MCC), 194 (Simple Pneumonia and Pleurisy with CC), and 195 (Simple Pneumonia and Pleurisy without MCC/CC) to MS-DRGs 177, 178, and 179.

H. Recalibration of MS-DRG Weights

In developing the FY 2012 system of weights, we used two data sources: claims data and cost report data. As in previous years, the claims data source is the MedPAR file. This file is based on fully coded diagnostic and procedure data for all Medicare inpatient hospital bills. The FY 2010 MedPAR data used in this final rule include discharges occurring on October 1, 2009, through September 30, 2010, based on bills received by CMS through March 31, 2011, from all hospitals subject to the IPPS and short-term, acute care hospitals in Maryland (which are under a waiver from the IPPS under section 1814(b)(3) of the Act). The FY 2010MedPAR file used in calculating the relative weights includes data for approximately 10,836,723 Medicare discharges from IPPS providers. Discharges for Medicare beneficiaries enrolled in a Medicare Advantage managed care plan are excluded from this analysis. These discharges are excluded when the MedPAR “GHO Paid” indicator field on the claim record is equal to “1” or when the MedPAR DRG payment field, which represents the total payment for the claim, is equal to the MedPAR “Indirect Medical Education (IME)” payment field, indicating that the claim was an “IME only” claim submitted by a teaching hospital on behalf of a beneficiary enrolled in a Medicare Advantage managed care plan. In addition, the March 31, 2011 update of the FY 2010 MedPAR was updated to comply with version 5010 of the X12 HIPAA Transaction and Code Set Standards. The expansion of the MedPAR to the 5010 format includes a new variable called “claim type.” Claim type “60” indicates that the claim was an inpatient claim paid as fee-for-service. Claim types of “61,” “62,” “63,” and “64” relate to encounter claims, Medicare Advantage IME claims, and HMO no-pay claims. Therefore, beginning with the calculation of the relative weights for FY 2012, we are also excluding claims with claim type values not equal to “60.” The data exclude CAHs, including hospitals that subsequently became CAHs after the period from which the data were taken. The second data source used in the cost-based relative weighting methodology is the FY 2009 Medicare cost report data files from HCRIS (that is, cost reports beginning on or after October 1, 2008, and before October 1, 2009), which represents the most recent full set of cost report data available. We used the March 31, 2011 update of the HCRIS cost report files for FY 2009 in setting the relative cost-based weights.

The methodology we used to calculate the DRG cost-based relative weights from the FY 2010 MedPAR claims data and FY 2009 Medicare cost report data is as follows:

  • To the extent possible, all the claims were regrouped using the FY 2012 MS-DRG classifications discussed in sections II.B. and G. of the preamble of this final rule.
  • The transplant cases that were used to establish the relative weights for heart and heart-lung, liver and/or intestinal, and lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) were limited to those Medicare-approved transplant centers that have cases in the FY 2010 MedPAR file. (Medicare coverage for heart, heart-lung, liver and/or intestinal, and lung transplants is limited to those facilities that have received approval from CMS as transplant centers.)
  • Organ acquisition costs for kidney, heart, heart-lung, liver, lung, pancreas, and intestinal (or multivisceral organs) transplants continue to be paid on a reasonable cost basis. Because these acquisition costs are paid separately from the prospective payment rate, it is necessary to subtract the acquisition charges from the total charges on each transplant bill that showed acquisition charges before computing the average cost for each MS-DRG and before eliminating statistical outliers.
  • Claims with total charges or total lengths of stay less than or equal to zero were deleted. Claims that had an amount in the total charge field that differed by more than $10.00 from the sum of the routine day charges, intensive care charges, pharmacy charges, special equipment charges, therapy services charges, operating room charges, cardiology charges, laboratory charges, radiology charges, other service charges, labor and delivery charges, inhalation therapy charges, emergency room charges, blood charges, and anesthesia charges were also deleted.
  • At least 96.2 percent of the providers in the MedPAR file had charges for 10 of the 15 cost centers. Claims for providers that did not have charges greater than zero for at least 10 of the 15 cost centers were deleted.
  • Statistical outliers were eliminated by removing all cases that were beyond 3.0 standard deviations from the mean of the log distribution of both the total charges per case and the total charges per day for each MS-DRG.
  • Effective October 1, 2008, because hospital inpatient claims include a POA indicator field for each diagnosis present on the claim, only for purposes of relative weight-setting, the POA indicator field was reset to “Y” for “Yes” for all claims that otherwise have an “N” (No) or a “U” (documentation insufficient to determine if the condition was present at the time of inpatient admission) in the POA field.

Under current payment policy, the presence of specific HAC codes, as indicated by the POA field values, can generate a lower payment for the claim. Specifically, if the particular condition is present on admission (that is, a “Y” indicator is associated with the diagnosis on the claim), it is not a HAC, and the hospital is paid for the higher severity (and, therefore, the higher weighted MS-DRG). If the particular condition is not present on admission (that is, an “N” indicator is associated with the diagnosis on the claim) and there are no other complicating conditions, the DRG GROUPER assigns the claim to a lower severity (and, therefore, the lower weighted MS-DRG) as a penalty for allowing a Medicare inpatient to contract a HAC. While the POA reporting meets policy goals of encouraging quality care and generates program savings, it presents an issue for the relative weight-setting process. Because cases identified as HACs are likely to be more complex than similar cases that are not identified as HACs, the charges associated with HAC cases are likely to be higher as well. Thus, if the higher charges of these HAC claims are grouped into lower severity MS-DRGs prior to the relative weight-setting process, the relative weights of these particular MS-DRGs would become artificially inflated, potentially skewing the relative weights. In addition, we want to protect the integrity of the budget neutrality process by ensuring that, in estimating payments, no increase to the standardized amount occurs as a result of lower overall payments in a previous year that stem from using weights and case-mix that are based on lower severity MS-DRG assignments. If this would occur, the anticipated cost savings from the HAC policy would be lost.

To avoid these problems, we reset the POA indicator field to “Y” only for relative weight-setting purposes for all claims that otherwise have a “N” or an “U” in the POA field. This resetting “forced” the more costly HAC claims into the higher severity MS-DRGs as appropriate, and the relative weights calculated for each MS-DRG more closely reflect the true costs of those cases.

Once the MedPAR data were trimmed and the statistical outliers were removed, the charges for each of the 15 cost groups for each claim were standardized to remove the effects of differences in area wage levels, IME and DSH payments, and for hospitals in Alaska and Hawaii, the applicable cost-of-living adjustment. Because hospital charges include charges for both operating and capital costs, we standardized total charges to remove the effects of differences in geographic adjustment factors, cost-of-living adjustments, and DSH payments under the capital IPPS as well. Charges were then summed by MS-DRG for each of the 15 cost groups so that each MS-DRG had 15 standardized charge totals. These charges were then adjusted to cost by applying the national average CCRs developed from the FY 2009 cost report data.

The 15 cost centers that we used in the relative weight calculation are shown in the following table. The table shows the lines on the cost report and the corresponding revenue codes that we used to create the 15 national cost center CCRs.

BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C

We developed the national average CCRs as follows:

Taking the FY 2009 cost report data, we removed CAHs, Indian Health Service hospitals, all-inclusive rate hospitals, and cost reports that represented time periods of less than 1 year (365 days). We included hospitals located in Maryland because we include their charges in our claims database. We then created CCRs for each provider for each cost center (see prior table for line items used in the calculations) and removed any CCRs that were greater than 10 or less than 0.01. We normalized the departmental CCRs by dividing the CCR for each department by the total CCR for the hospital for the purpose of trimming the data. We then took the logs of the normalized cost center CCRs and removed any cost center CCRs where the log of the cost center CCR was greater or less than the mean log plus/minus 3 times the standard deviation for the log of that cost center CCR. Once the cost report data were trimmed, we calculated a Medicare-specific CCR. The Medicare-specific CCR was determined by taking the Medicare charges for each line item from Worksheet D-4 and deriving the Medicare-specific costs by applying the hospital-specific departmental CCRs to the Medicare-specific charges for each line item from Worksheet D-4. Once each hospital's Medicare-specific costs were established, we summed the total Medicare-specific costs and divided by the sum of the total Medicare-specific charges to produce national average, charge-weighted CCRs.

After we multiplied the total charges for each MS-DRG in each of the 15 cost centers by the corresponding national average CCR, we summed the 15 “costs” across each MS-DRG to produce a total standardized cost for the MS-DRG. The average standardized cost for each MS-DRG was then computed as the total standardized cost for the MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The average cost for each MS-DRG was then divided by the national average standardized cost per case to determine the relative weight.

The new cost-based relative weights were then normalized by an adjustment factor of 1.5808272736 so that the average case weight after recalibration was equal to the average case weight before recalibration. The normalization adjustment is intended to ensure that recalibration by itself neither increases nor decreases total payments under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.

The 15 national average CCRs for FY 2012 are as follows:

GroupCCR
Routine Days0.525
Intensive Days0.453
Drugs0.199
Supplies & Equipment0.329
Therapy Services0.380
Laboratory0.146
Operating Room0.251
Cardiology0.155
Radiology0.140
Emergency Room0.236
Blood and Blood Products0.402
Other Services0.402
Labor & Delivery0.454
Inhalation Therapy0.191
Anesthesia0.116

Since FY 2009, the relative weights have been based on 100 percent cost weights based on our MS-DRG grouping system.

When we recalibrated the DRG weights for previous years, we set a threshold of 10 cases as the minimum number of cases required to compute a reasonable weight. In the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to use that same case threshold in recalibrating the MS-DRG weights for FY 2012. Using the FY 2010 MedPAR data set, there were 8 MS-DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because we no longer have separate DRGs for patients aged 0 to 17 years. With the exception of newborns, we previously separated some DRGs based on whether the patient was age 0 to 17 years or age 17 years and older. Other than the age split, cases grouping to these DRGs are identical. The DRGs for patients aged 0 to 17 years generally have very low volumes because children are typically ineligible for Medicare. In the past, we have found that the low volume of cases for the pediatric DRGs could lead to significant year-to-year instability in their relative weights. Although we have always encouraged non-Medicare payers to develop weights applicable to their own patient populations, we have heard frequent complaints from providers about the use of the Medicare relative weights in the pediatric population. We believe that eliminating this age split in the MS-DRGs will provide more stable payment for pediatric cases by determining their payment using adult cases that are much higher in total volume. Newborns are unique and require separate MS-DRGs that are not mirrored in the adult population. Therefore, it remains necessary to retain separate MS-DRGs for newborns. All of the low-volume MS-DRGs listed below are for newborns. In FY 2012, because we do not have sufficient MedPAR data to set accurate and stable cost weights for these low-volume MS-DRGs, we proposed to compute weights for the low-volume MS-DRGs by adjusting their FY 2011 weights by the percentage change in the average weight of the cases in other MS-DRGs. The crosswalk table is shown below:

Low-volumeMS-DRGMS-DRG titleCrosswalk to MS-DRG
768Vaginal Delivery with O.R. Procedure Except Sterilization and/or D&CFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
789Neonates, Died or Transferred to Another Acute Care FacilityFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
790Extreme Immaturity or Respiratory Distress Syndrome, NeonateFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
791Prematurity with Major ProblemsFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
792Prematurity without Major ProblemsFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
793Full-Term Neonate with Major ProblemsFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
794Neonate with Other Significant ProblemsFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).
795Normal NewbornFY 2011 FR weight (adjusted by percent change in average weight of the cases in other MS-DRGs).

We did not receive any public comments on this section. Therefore, we are adopting the national average CCRs as proposed, with the MS-DRG weights recalibrated based on these CCRs.

I. Add-On Payments for New Services and Technologies

1. Background

Sections 1886(d)(5)(K) and (L) of the Act establish a process of identifying and ensuring adequate payment for new medical services and technologies (sometimes collectively referred to in this section as “new technologies”) under the IPPS. Section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered new if it meets criteria established by the Secretary after notice and opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act specifies that a new medical service or technology may be considered for new technology add-on payment if, “based on the estimated costs incurred with respect to discharges involving such service or technology, the DRG prospective payment rate otherwise applicable to such discharges under this subsection is inadequate.” We note that beginning with discharges occurring in FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.

The regulations implementing these provisions specify three criteria for a new medical service or technology to receive the additional payment: (1) The medical service or technology must be new; (2) the medical service or technology must be costly such that the DRG rate otherwise applicable to discharges involving the medical service or technology is determined to be inadequate; and (3) the service or technology must demonstrate a substantial clinical improvement over existing services or technologies. These three criteria are explained below in the ensuing paragraphs in further detail.

Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a specific medical service or technology will be considered “new” for purposes of new medical service or technology add-on payments until such time as Medicare data are available to fully reflect the cost of the technology in the MS-DRG weights through recalibration. Typically, there is a lag of 2 to 3 years from the point a new medical service or technology is first introduced on the market (generally on the date that the technology receives FDA approval/clearance) and when data reflecting the use of the medical service or technology are used to calculate the MS-DRG weights. For example, data from discharges occurring during FY 2010 were used to calculate the FY 2012 MS-DRG weights in this final rule. Section 412.87(b)(2) of the regulations therefore provides that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology (depending on when a new code is assigned and data on the new medical service or technology become available for DRG recalibration). After CMS has recalibrated the MS-DRGs, based on available data to reflect the costs of an otherwise new medical service or technology, the medical service or technology will no longer be considered `new' under the criterion for this section.”

The 2-year to 3-year period during which a medical service or technology can be considered new would ordinarily begin on the date on which the medical service or technology received FDA approval or clearance. (We note that, for purposes of this section of this final rule, we generally refer to both FDA approval and FDA clearance as FDA “approval.”) However, in some cases, there may be few to no Medicare data available for the new service or technology following FDA approval. For example, the newness period could extend beyond the 2-year to 3-year period after FDA approval is received in cases where the product initially was generally unavailable to Medicare patients following FDA approval, such as in cases of a national noncoverage determination or a documented delay in bringing the product onto the market after that approval (for instance, component production or drug production has been postponed following FDA approval due to shelf life concerns or manufacturing issues). After the MS-DRGs have been recalibrated to reflect the costs of an otherwise new medical service or technology, the medical service or technology is no longer eligible for special add-on payment for new medical services or technologies (as specified under § 412.87(b)(2)). For example, an approved new technology that received FDA approval in October 2009 and entered the market at that time may be eligible to receive add-on payments as a new technology for discharges occurring before October 1, 2012 (the start of FY 2013). Because the FY 2013 MS-DRG weights would be calculated using FY 2011 MedPAR data, the costs of such a new technology would be fully reflected in the FY 2013 MS-DRG weights. Therefore, the new technology would no longer be eligible to receive add-on payments as a new technology for discharges occurring in FY 2013 and thereafter.

We do not consider a service or technology to be new if it is substantially similar to one or more existing technologies. That is, even if a technology receives a new FDA approval, it may not necessarily be considered “new” for purposes of new technology add-on payments if it is “substantially similar” to a technology that was approved by FDA and has been on the market for more than 2 to 3 years. In the FY 2006 IPPS final rule (70 FR 47351), we explained our policy regarding substantial similarity in detail and its relevance for assessing if the hospital charge data used in the development of the relative weights for the relevant DRGs reflect the costs of the technology. In that final rule, we stated that, for determining substantial similarity, we consider (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome, and (2) whether a product is assigned to the same or a different DRG. We indicated that both of the above criteria should be met in order for a technology to be considered “substantially similar” to an existing technology. However, in that same final rule, we also noted that, due to the complexity of issues regarding the substantial similarity component of the newness criterion, it may be necessary to exercise flexibility when considering whether technologies are substantially similar to one another. Specifically, we stated that we may consider additional factors, depending on the circumstances specific to each application.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 43814), we noted that the discussion of substantial similarity in the FY 2006 IPPS final rule related to comparing two separate technologies made by different manufacturers. Nevertheless, we stated that the criteria discussed in the FY 2006 IPPS final rule also are relevant when comparing the similarity between a new use and existing uses of the same technology (or a very similar technology manufactured by the same manufacturer). In other words, we stated that it is necessary to establish that the new indication for which the technology has received FDA approval is not substantially similar to that of the prior indication. We explained that such a distinction is necessary to determine the appropriate start date of the newness period in evaluating whether the technology would qualify for add-on payments (that is, the date of the “new” FDA approval or that of the priorapproval), or whether the technology could qualify for separate new technology add-on payments under each indication.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43814), we added a third factor of consideration to our analysis of whether a new technology is substantially similar to one or more existing technologies. Specifically, in making a determination of whether a technology is substantially similar to an existing technology, we adopted a policy to consider whether the new use of the technology involves the treatment of the same or similar type of disease and the same or similar patient population (74 FR 24130), in addition to considering the already established factors described in the FY 2006 IPPS final rule (that is, (1) whether a product uses the same or a similar mechanism of action to achieve a therapeutic outcome; and (2) whether a product is assigned to the same or a different DRG). As we noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, if all three components are present and the new use is deemed substantially similar to one or more of the existing uses of the technology (that is, beyond the newness period), we would conclude that the technology is not new and, therefore, is ineligible for the new technology add-on payment.

Under the second criterion, § 412.87(b)(3) further provides that, to be eligible for the add-on payment for new medical services or technologies, the MS-DRG prospective payment rate otherwise applicable to the discharge involving the new medical services or technologies must be assessed for adequacy. Under the cost criterion, to assess the adequacy of payment for a new technology paid under the applicable MS-DRG prospective payment rate, we evaluate whether the charges for cases involving the new technology exceed certain threshold amounts. In the FY 2004 IPPS final rule (68 FR 45385), we established the threshold at the geometric mean standardized charge for all cases in the MS-DRG plus 75 percent of 1 standard deviation above the geometric mean standardized charge (based on the logarithmic values of the charges and converted back to charges) for all cases in the MS-DRG to which the new medical service or technology is assigned (or the case-weighted average of all relevant MS-DRGs, if the new medical service or technology occurs in more than one MS-DRG).

However, section 503(b)(1) of Public Law 108-173 amended section 1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, CMS will apply “a threshold * * * that is the lesser of 75 percent of the standardized amount (increased to reflect the difference between cost and charges) or 75 percent of one standard deviation for the diagnosis-related group involved.” (We refer readers to section IV.D. of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a discussion of the revision of the regulations to incorporate the change made by section 503(b)(1) of Public Law 108-173.) Table 10 that was included in the IPPS/LTCH PPS final rule published in the Federal Register on August 16, 2010, contained the final thresholds that were used to evaluate applications for new technology add-on payments for this final rule for FY 2012 (75 FR 50605 through 50613).

In the September 7, 2001 final rule that established the new technology add-on payment regulations (66 FR 46917), we discussed the issue of whether the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule at 45 CFR Parts 160 and 164 applies to claims information that providers submit with applications for new technology add-on payments. Specifically, we explained that health plans, including Medicare, and providers that conduct certain transactions electronically, including hospitals that would receive new technology add-on payments, are required to comply with the HIPAA Privacy Rule. We further explained how such entities could meet the applicable HIPAA requirements by discussing how the HIPAA Privacy Rule permitted providers to share with health plans information needed to ensure correct payment, if they had obtained consent from the patient to use that patient's data for treatment, payment, or health care operations. We also explained that, because the information to be provided within applications for new technology add-on payment would be needed to ensure correct payment, no additional consent would be required. The HHS Office for Civil Rights has since amended the HIPAA Privacy Rule, but the results remain. The HIPAA Privacy Rule does not require a covered entity to obtain consent from patients to use or disclose protected health information for the covered entity's treatment, payment, or health care operations purposes, and expressly permits such entities to use or to disclose protected health information for these purposes and for the treatment purposes of another health care provider and the payment purposes of another covered entity or health care provider. (We refer readers to 45 CFR 164.502(a)(1)(ii) and 164.506(c)(1) and (c)(3) and the Standards for Privacy of Individually Identifiable Health Information published in the Federal Register (67 FR 53208 through 53214) on August 14, 2002, for a full discussion of consent in the context of the HIPAA Privacy Rule.)

Under the third criterion, § 412.87(b)(1) of our existing regulations provides that a new technology is an appropriate candidate for an additional payment when it represents “an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” For example, a new technology represents a substantial clinical improvement when it reduces mortality, decreases the number of hospitalizations or physician visits, or reduces recovery time compared to the technologies previously available. (We refer readers to the September 7, 2001 final rule for a complete discussion of this criterion (66 FR 46902).)

The new medical service or technology add-on payment policy under the IPPS provides additional payments for cases with relatively high costs involving eligible new medical services or technologies while preserving some of the incentives inherent under an average-based prospective payment system. The payment mechanism is based on the cost to hospitals for the new medical service or technology. Under § 412.88, if the costs of the discharge (determined by applying cost to charge ratios (“CCRs”) as described in § 412.84(h)) exceed the full DRG payment (including payments for IME and DSH, but excluding outlier payments), Medicare will make an add-on payment equal to the lesser of: (1) 50 percent of the estimated costs of the new technology (if the estimated costs for the case including the new technology exceed Medicare's payment); or (2) 50 percent of the difference between the full DRG payment and the hospital's estimated cost for the case. Unless the discharge qualifies for an outlier payment, Medicare payment is limited to the full MS-DRG payment plus 50 percent of the estimated costs of the new technology.

Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments to annual MS-DRG classifications and relative weights be made in a manner that ensures that aggregate payments to hospitals are not more or less than they were in the prior fiscal year (that is, they are “budget neutral”). Therefore, in the past, we accounted for projected payments under the new medical service and technology provision during the upcoming fiscal year, while at thesame time estimating the payment effect of changes to the MS-DRG classifications and recalibration. The impact of additional payments under this provision was then included in the budget neutrality factor, which was applied to the standardized amounts and the hospital-specific amounts. However, section 503(d)(2) of Public Law 108-173 provides that there shall be no reduction or adjustment in aggregate payments under the IPPS due to add-on payments for new medical services and technologies. Therefore, in accordance with section 503(d)(2) of Public Law 108-173, add-on payments for new medical services or technologies for FY 2005 and later years have not been subjected to budget neutrality.

In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we modified our regulations at § 412.87 to codify our longstanding practice of how CMS evaluates the eligibility criteria for new medical service or technology add-on payment applications. That is, we first determine whether a medical service or technology meets the newness criteria, and only if so, do we then make a determination as to whether the technology meets the cost threshold and represents a substantial clinical improvement over existing medical services or technologies. We also amended § 412.87(c) to specify that all applicants for new technology add-on payments must have FDA approval or clearance for their new medical service or technology by July 1 of each year prior to the beginning of the fiscal year that the application is being considered.

The Council on Technology and Innovation (CTI) at CMS oversees the agency's cross-cutting priority on coordinating coverage, coding and payment processes for Medicare with respect to new technologies and procedures, including new drug therapies, as well as promoting the exchange of information on new technologies between CMS and other entities. The CTI, composed of senior CMS staff and clinicians, was established under section 942(a) of Public Law 108-173. The Council is co-chaired by the Director of the Office of Clinical Standards and Quality (OCSQ) and the Director of the Center for Medicare (CM), who is also designated as the CTI's Executive Coordinator.

The specific processes for coverage, coding, and payment are implemented by CM, OCSQ, and the local claims-payment contractors (in the case of local coverage and payment decisions). The CTI supplements, rather than replaces, these processes by working to assure that all of these activities reflect the agency-wide priority to promote high-quality, innovative care. At the same time, the CTI also works to streamline, accelerate, and improve coordination of these processes to ensure that they remain up to date as new issues arise. To achieve its goals, the CTI works to streamline and create a more transparent coding and payment process, improve the quality of medical decisions, and speed patient access to effective new treatments. It is also dedicated to supporting better decisions by patients and doctors in using Medicare-covered services through the promotion of better evidence development, which is critical for improving the quality of care for Medicare beneficiaries.

CMS plans to continue its Open Door forums with stakeholders who are interested in CTI's initiatives. In addition, to improve the understanding of CMS' processes for coverage, coding, and payment and how to access them, the CTI has developed an “Innovator's Guide” to these processes. The intent is to consolidate this information, much of which is already available in a variety of CMS documents and in various places on the CMS Web site, in a user-friendly format. This guide was published in August 2008 and is available on the CMS Web site at: http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.

As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we invite any product developers or manufacturers of new medical technologies to contact the agency early in the process of product development if they have questions or concerns about the evidence that would be needed later in the development process for the agency's coverage decisions for Medicare.

The CTI aims to provide useful information on its activities and initiatives to stakeholders, including Medicare beneficiaries, advocates, medical product manufacturers, providers, and health policy experts. Stakeholders with further questions about Medicare's coverage, coding, and payment processes, or who want further guidance about how they can navigate these processes, can contact the CTI at CTI@cms.hhs.gov.

We note that applicants for add-on payments for new medical services or technologies for FY 2013 must submit a formal request, including a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial clinical improvement, along with a significant sample of data to demonstrate that the medical service or technology meets the high-cost threshold. Complete application information, along with final deadlines for submitting a full application, will be posted as it becomes available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to identify the new medical services or technologies under review before the publication of the proposed rule for FY 2013, the Web site also will post the tracking forms completed by each applicant.

Comment: A number of commenters submitted public comments that addressed topics relating to the substantial similarity criteria, marginal cost factor for the new technology add-on payment, the use of external data in determining the cost threshold, paying new technology add-on payments for 2 to 3 years, mapping new technologies to the appropriate MS-DRG, and the use of the date that a ICD-9-CM code is assigned to a technology or the FDA approval date (whichever is later) as the start of the newness period.

Response: We did not invite public comments nor propose to make any changes to any of the issues summarized above. Because these public comments are outside of the scope of the provisions included in the proposed rule, we are not providing a complete summary of the comments or responding to them in this final rule.

2. Public Input Before Publication of a Notice of Proposed Rulemaking on Add-On Payments

Section 1886(d)(5)(K)(viii) of the Act, as amended by section 503(b)(2) of Public Law 108-173, provides for a mechanism for public input before publication of a notice of proposed rulemaking regarding whether a medical service or technology represents a substantial clinical improvement or advancement. The process for evaluating new medical service and technology applications requires the Secretary to—

  • Provide, before publication of a proposed rule, for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries;
  • Make public and periodically update a list of the services and technologies for which applications for add-on payments are pending;
  • Accept comments, recommendations, and data from the public regarding whether a service ortechnology represents a substantial clinical improvement; and
  • Provide, before publication of a proposed rule, for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data regarding whether a new medical service or technology represents a substantial clinical improvement to the clinical staff of CMS.

In order to provide an opportunity for public input regarding add-on payments for new medical services and technologies for FY 2012 prior to publication of the FY 2012 IPPS/LTCH PPS proposed rule, we published a notice in theFederal Registeron November 29, 2010 (75 FR 73091 through 73094), and held a town hall meeting at the CMS Headquarters Office in Baltimore, MD, on February 2, 2011. In the announcement notice for the meeting, we stated that the opinions and alternatives provided during the meeting would assist us in our evaluations of applications by allowing public discussion of the substantial clinical improvement criterion for each of the FY 2012 new medical service and technology add-on payment applications before the publication of the FY 2012 proposed rule.

Approximately 50 individuals registered to attend the town hall meeting in person, while additional individuals listened over an open telephone line. Each of the three FY 2012 applicants presented information on its technology, including a discussion of data reflecting the substantial clinical improvement aspect of the technology. We considered each applicant's presentation made at the town hall meeting, as well as written comments submitted on the applications, in our evaluation of the new technology add-on applications for FY 2012 in the FY 2012 proposed rule and in this final rule.

In response to the published notice and the new technology town hall meeting, we received three written comments regarding applications for FY 2012 new technology add-on payments. We summarized these comments or, if applicable, indicated that there were no comments received, at the end of each discussion of the individual applications in the proposed rule. We refer readers to the FY 2012 IPPS/LTCH PPS proposed rule for a complete iteration of the comments received in response to the published notice and the new technology town hall meeting and CMS' responses (76 FR 25861 through 25863).

3. FY 2012 Status of Technologies Approved for FY 2011 Add-On Payments
a. Spiration® IBV® Valve System

Spiration, Inc. submitted an application for new technology add-on payments for the Spiration® IBV® Valve System (Spiration® IBV®). The Spiration® IBV® is a device that is used to place, via bronchoscopy, small, one-way valves into selected small airways in the lung in order to limit airflow into selected portions of lung tissue that have prolonged air leaks following surgery while still allowing mucus, fluids, and air to exit, thereby reducing the amount of air that enters the pleural space. The device is intended to control prolonged air leaks following three specific surgical procedures: lobectomy; segmentectomy; or lung volume reduction surgery (LVRS). According to the applicant, an air leak that is present on postoperative day 7 is considered “prolonged” unless present only during forced exhalation or cough. In order to help prevent valve migration, there are five anchors with tips that secure the valve to the airway. The implanted valves are intended to be removed no later than 6 weeks after implantation.

With regard to the newness criterion, the Spiration® IBV® received a HDE approval from the FDA on October 24, 2008. We were unaware of any previously FDA-approved predicate devices, or otherwise similar devices, that could be considered substantially similar to the Spiration® IBV®. However, the applicant asserted that the FDA had precluded the device from being used in the treatment of any patients until the Institutional Review Board (IRB) granted approvals regarding its study sites. Therefore, the Spiration® IBV® met the newness criterion once it obtained at least one IRB approval because the device would then be available on the market to treat Medicare beneficiaries. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43819), the applicant stated that the first IRB approval for the Spiration® IBV® was March 12, 2009. In that final rule, based on the information above from the applicant, we determined that the Spiration® IBV® meets the newness criterion and the newness period for the Spiration® IBV® begins on March 12, 2009.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for the Spiration® IBV® and consideration of the public comments we received in response to the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, including the additional analysis of clinical data and supporting information submitted by the applicant, we approved the Spiration® IBV® for new technology add-on payments for FY 2010 with a maximum add-on payment of $3,437.50.

In the FY 2011 IPPS/LTCH PPS proposed rule, we did not propose any changes to the new technology add-on payments for the Spiration® IBV®. We did not receive any public comments on whether to continue or discontinue the new technology add-on payment for the Spiration® IBV® for FY 2011. Therefore, for FY 2011, we continued new technology add-on payments for cases involving the Spiration® IBV® in FY 2011, with a maximum add-on payment of $3,437.50.

The new technology add-on payment regulations provide that “a medical service or technology may be considered new within 2 or 3 years after the point at which data begin to become available reflecting the ICD-9-CM code assigned to the new medical service or technology” (42 CFR 412.87(b)(2)). Our practice has been to begin and end new technology add-on payments on the basis of a fiscal year, and we have generally followed a guideline that uses a 6-month window before and after the start of the fiscal year to determine whether to extend the new technology add-on payment for an additional fiscal year. In general, we extend add-on payments for an additional year only if the 3-year anniversary date of the product's entry on the market occurs in the latter half of the fiscal year (70 FR 47362). With regard to the newness criterion for the Spiration® IBV®, as stated above, we consider the beginning of the newness period for the device to have commenced on the date of the first IRB approval for the Spiration® IBV®, which was March 12, 2009. For FY 2012, as of March 12, 2012, the Spiration® IBV® will have been on the market for 3 years, and is therefore no longer considered “new” as of March 12, 2012. Because the 3-year anniversary date of the Spiration® IBV®'s entry onto the market will occur in the first half of the fiscal year, we proposed to discontinue its new technology add-on payment for FY 2012.

Comment: One commenter requested that the new technology add-on payments for the Spiration® IBV® be extended for a third year. The commenter reasoned that, although two hospital IRBs approved the use of the Spiration® IBV®, those two hospitals did not implant the valve until June 2010 and September 2010, respectively. The commenter explained that there was a delay in the hospitals' implantation of the device from the time of IRB approval due to the followingreasons: (1) Infrequent number of cases; and (2) the clinical, administrative, and operation processes that needed to be completed in order to make the technology available under HDE approval at each institution. Therefore, the commenter stated that even though a hospital would have received IRB approval, it would not expect the first case to be performed immediately. The commenter believed that for these reasons, the newness period should begin with the first implantation of the Spiration® IBV®, which occurred in June 2009. Using this date, the commenter determined that the newness period for the Spiration® IBV® would end June 2012, during the latter half of FY 2012, thus making the Spiration® IBV® eligible for a third year of new technology add-on payments.

Response: CMS' policy is that the newness period begins with the product's or device's FDA approval date, except in limited circumstances that could limit the availability of the product (69 FR 49002). In this case, the product was approved as an HDE, which included IRB approval as a requirement. Therefore, we determined that the date of IRB approval was the appropriate start date of the newness period (74 FR 43819). We do not agree that the start date for the newness period should be further adjusted if a hospital then decided not to immediately utilize the technology. In this case, the hospital's IRB approved the product for use on March 12, 2009, and the product was available, but no patients had the product implanted until June 2010. We believe this is similar to a situation in which a technology is FDA approved (without any additional qualifications for use, such as IRB approval), but no hospital uses the technology for a period of time after FDA approval. In such a case, the newness period would still begin with FDA approval, and we would not delay the beginning of the newness period until a hospital uses the drug or device for the first time. Therefore, we disagree with the commenter, and we continue to believe it is appropriate to start the newness period for the Spiration® IBV® with the first IRB approval, which was March 12, 2009. As mentioned above, for FY 2012, as of March 12, 2012, the Spiration® IBV® will have been available for hospitals' utilization for 3 years, and it is therefore no longer considered “new” as of March 12, 2012. Because this date occurs in the first half of the fiscal year, we are finalizing our proposal to discontinue its new technology add-on payment for FY 2012.

b. CardioWest

SynCardia Systems, Inc. submitted an application for approval of the CardioWest TM Temporary Total Artificial Heart System (TAH-t) in FY 2009. The TAH-t is a technology that is used as a bridge to heart transplant device for heart transplant-eligible patients with end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of blood per minute. This high level of perfusion helps improve hemodynamic function in patients, thus making them better heart transplant candidates.

The TAH-t was approved by the FDA on October 15, 2004, for use as a bridge to transplant device in cardiac transplant-eligible candidates at risk of imminent death from biventricular failure. The TAH-t is intended to be used in hospital inpatients. One of the FDA's post-approval requirements is that the manufacturer agrees to provide a post-approval study demonstrating that success of the device at one center can be reproduced at other centers. The study was to include at least 50 patients who would be followed up to 1 year, including (but not limited to) the following endpoints: Survival to transplant; adverse events; and device malfunction.

In the past, Medicare did not cover artificial heart devices, including the TAH-t. However, on May 1, 2008, CMS issued a final national coverage determination (NCD) expanding Medicare coverage of artificial hearts when they are implanted as part of a study that is approved by the FDA and is determined by CMS to meet CMS' Coverage with Evidence Development (CED) clinical research criteria. (The final NCD is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211.)

We indicated in the FY 2009 IPPS final rule (73 FR 48555) that, because Medicare's previous coverage policy with respect to this device had precluded payment from Medicare, we did not expect the costs associated with this technology to be currently reflected in the data used to determine the relative weights of MS-DRGs. As we have indicated in the past, and as we discussed in the FY 2009 IPPS final rule, although we generally believe that the newness period would begin on the date that FDA approval was granted, in cases where the applicant can demonstrate a documented delay in market availability subsequent to FDA approval, we would consider delaying the start of the newness period. This technology's situation represented such a case. We also noted that section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for the collection of cost data for a new medical service or technology for a period of at least 2 years and no more than 3 years “beginning on the date on which an inpatient hospital code is issued with respect to the service or technology.” Furthermore, the statute specifies that the term “inpatient hospital code” means any code that is used with respect to inpatient hospital services for which payment may be made under the IPPS and includes ICD-9-CM codes and any subsequent revisions. Although the TAH-t has been described by the ICD-9-CM code(s) since the time of its FDA approval, because the TAH-t had not been covered under the Medicare program (and, therefore, no Medicare payment had been made for this technology), this code could not be “used with respect to inpatient hospital services for which payment” is made under the IPPS, and thus we assumed that none of the costs associated with this technology would be reflected in the Medicare claims data used to recalibrate the MS-DRG relative weights for FY 2009. For this reason, as discussed in the FY 2009 IPPS final rule, despite the FDA approval date of the technology, we determined that TAH-t would still be eligible to be considered “new” for purposes of the new technology add-on payment because the TAH-t met the newness criterion on the date that Medicare coverage began, consistent with issuance of the final NCD, effective on May 1, 2008.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology add-on payments for the TAH-t and consideration of the public comments we received in response to the FY 2009 IPPS proposed rule, we approved the TAH-t for new technology add-on payments for FY 2009 (73 FR 48557). We also continued to make new technology add-on payments for the TAH-t in FY 2010 and FY 2011.

We describe the new technology add-on payment requirements with regard to newness above. With regard to the newness criterion for the TAH-t, as stated above, we consider the beginning of the newness period for the device to have commenced from the Medicare NCD date of May 1, 2008; it is no longer considered new as of May 11, 2011. Because the 3-year anniversary date of the TAH-t will occur prior to the start of FY 2012, we proposed to discontinue the new technology add-on payment for the TAH-t in FY 2012.

We did not receive any public comments on this proposal. Therefore, we are finalizing our proposal to discontinue new technology add-on payments for the TAH-t in FY 2012.

c. Auto Laser Interstitial Thermal Therapy (AutoLITT

Monteris Medical submitted an application for new technology add-on payments for FY 2011 for the AutoLITT TM. AutoLITT TM is a minimally invasive, MRI-guided laser tipped catheter designed to destroy malignant brain tumors with interstitial thermal energy causing immediate coagulation and necrosis of diseased tissue. The technology can be identified by ICD-9-CM procedure codes 17.61 (Laser interstitial thermal therapy [LITT] of lesion or tissue of brain under guidance), and 17.62 (Laser interstitial thermal therapy [LITT] of lesion or tissue of head and neck under guidance), which became effective on October 1, 2009.

The AutoLITT TM received a 510K FDA clearance in May 2009. The AutoLITT TM is indicated for use to necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in medicine and surgery in the discipline of neurosurgery with 1064 nm lasers. The AutoLITT TM may be used in patients with glioblastoma multiforme brain (GBM) tumors. The applicant stated in its application and through supplemental information that, due to required updates, the technology was actually introduced to the market in December 2009. The applicant explained that it was necessary to reduce the thermal damage lines from three to one and complete International Electrotechnical Commission/Underwriter Laboratory testing, which led to the introduction of the technology to the market in December 2009, although the technology was approved by FDA in May 2009. The applicant also stated through supplementary information to its application that the first sale of the product took place on March 19, 2010. However, because the product was already available for use in December 2009, it appears that the newness date would begin in December 2009. In the FY 2011 IPPS/LTCH PPS proposed rule, we welcomed public comments on this issue.

After evaluation of the newness, costs, and substantial clinical improvement criteria for new technology payments for the AutoLITT TM and consideration of the public comments we received in response to the FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, including the additional analysis of clinical data and supporting information submitted by the applicant, we approved the AutoLITT TM for new technology add-on payments for FY 2011. Consistent with the applicant's clinical trial, the add-on payment is intended only for use of the device in cases of Glioblastoma Multiforme. Therefore, we limited the new technology add-on payment to cases involving the AutoLITT TM in MS-DRGs 025 (Craniotomy and Endovascular Intracranial Procedures with MCC), 026 (Craniotomy and Endovascular Intracranial Procedures with CC), and 027 (Craniotomy and Endovascular Intracranial Procedures without CC or MCC). Cases involving the AutoLITT TM that are eligible for the new technology add-on payment are identified by assignment to MS-DRGs 025, 026, and 027 with a procedure code of 17.61 (Laser interstitial thermotherapy of lesion or tissue of brain under guidance) in combination with a primary diagnosis codes that begins with a prefix of 191 (Malignant neoplasm of brain). We note that using the procedure and diagnosis codes above and restricting the add-on payment to cases that map to MS-DRGs 025, 026, and 027 is consistent with information provided by the applicant, which demonstrated that cases of the AutoLITT TM would only map to MS-DRGs 025, 026, and 027. Procedure code 17.62 (Laser interstitial thermotherapy of lesion or tissue of head and neck under guidance) does not map to MS-DRGs 025, 026, or 027 under the GROUPER software and, therefore, is ineligible for new technology add-on payment.

The average cost of the AutoLITT TM is reported as $10,600 per case. Under § 412.88(a)(2) of the regulations, new technology add-on payments are limited to the lesser of 50 percent of the average cost of the device or 50 percent of the costs in excess of the MS-DRG payment for the case. As a result, the maximum add-on payment for a case involving the AutoLITT TM is $5,300.

We describe the new technology add-on payment requirements with regard to newness above. With regard to the newness criterion for the AutoLITT TM, as stated above, we consider the beginning of the newness period for the device to commence from the market release date of December 2009. Therefore, the device will be considered “new” until December 2012. Because the 3-year anniversary date for the AutoLITT TM will occur after FY 2012, we proposed to continue to make new technology add-on payments for the AutoLITT TM in FY 2012.

We did not receive any public comments on this proposal. Therefore, we are finalizing our proposal to continue to make new technology add-on payments for the AutoLITT TM in FY 2012. The maximum add-on payment for a case involving the AutoLITT TM will continue to be $5,300 for FY 2012.

4. FY 2012 Applications for New Technology Add-On Payments

We received three applications for new technology add-on payments for FY 2012. However, one applicant, the Champion TM HF Monitoring System by CardioMems, Inc., withdrew its application after publication of the proposed rule because the applicant believed it would not receive FDA approval for its technology prior to the July 1 deadline, as required under § 412.87(c) of our regulations. Because the applicant withdrew its application, and we did not receive any public comments on this application, we are not discussing this application in this final rule. A discussion of the remaining two applications is presented below.

a. AxiaLIF® 2L+TM System

TranS1 submitted an application for new technology add-on payments for the AxiaLIF® 2L+TM System for FY 2012. The AxiaLIF® 2L+TM System is an implantable spinal fixation system, delivered through a pre-sacral approach, facilitating spinal fusion through axial stabilization of the anterior lumbar spine at Lumbar vertebrae 4 through Sacral vertebrae 1 (L4-S1).

The AxiaLIF® 2L+TM System received 510K FDA clearance (K092124) on January 21, 2010, and the applicant asserts that the device was available on the market immediately afterward through a limited market release program. The AxiaLIF® 2L+TM System is indicated for use to provide anterior stabilization of the L4-S1 spinal segments as an adjunct to spinal fusion. It is also indicated for minimally invasive access to the anterior portion of the lower spine for assisting in the treatment of degeneration of the lumbar disc, performing lumbar discectomy, or for assistance in the performance of L4-S1 interbody fusion. The AxiaLIF® 2L+TM System may be used in patients requiring fusion to treat pseudoarthrosis, unsuccessful previous fusion, spinal stenosis, spondylolisthesis (Grade 1), or degenerative disc disease as defined as back pain of discogenic origin with degeneration of the disc confirmed by history and radiographic studies. The AxiaLIF® 2L+TM System is coded using ICD-9-CM procedure code 81.08 (Lumbar and lumbosacral fusion of the anterior column, posterior technique).

In the FY 2012 IPPS/LTCH PPS proposed rule, we expressed numerousconcerns regarding the application for new technology add-on payments for the AxiaLIF® 2L+TM System. With regard to the newness criterion, we were concerned that the AxiaLIF® 2L+TM System may be substantially similar to the other devices manufactured by the applicant, AxiaLIF® System and AxiaLIF® II TM System, the latter of which is listed as the predicate device on the AxiaLIF® 2L+TM System's application for FDA approval. Specifically, in making a determination of substantial similarity, we consider the following: (1) Whether a product uses the same or similar mechanism of action to achieve a therapeutic outcome; (2) whether a product is assigned to the same or different DRG; and (3) whether the new use of a technology involves the treatment of the same or similar type of disease and the same or similar patient population.

We were particularly concerned that the AxiaLIF® 2L+TM System uses the same or similar mechanism of action as the AxiaLIF® II TM System to achieve a therapeutic outcome. According to the applicant's 510K summary submitted to the FDA (K073514), the AxiaLIF® System is a multicomponent system including titanium alloy implantable devices and instrumentation for creating a pre-sacral axial track to the L5-S1 disk space. Similarly, the AxiaLIF® II TM System is described in the applicant's 510K summary submitted to the FDA (K073643) as a system of medical grade titanium alloy for the anterior stabilization of the L4-S1 spinal segments as an adjunct to spinal fusion. As we stated in the proposed rule, the applicant states that the AxiaLIF® 2L+TM System was created from the AxiaLIF® II TM System platform. The applicant submitted the following to distinguish the AxiaLIF® 2L+TM System from the AxiaLIF® II TM System:

  • There have been internal thread changes for the 2L+ implant to accompany the Spanning Distraction Rod, which is designed to create and hold distraction in the L5-S1 disc space and allow for a higher degree of control over the Rod advancement and distraction;
  • The design enhancements in the 2L+ System remove the dependence of distraction on size and placement of the S1 Rod, thus allowing precise implant placement in the vertebral bodies;
  • In the 2L+ Implant, the L4 section of the L4-L5 Rod incorporates a conical design to increase fixation. The outer diameter (O.D.) of the L5 section is increased to be identical to the O.D. of the S1 implant to provide more surface area bone contact;
  • The 2L+ Instrumentation incorporates Dilator Trials as an opportunity to enhance and simplify the intraoperative measuring technique by providing a direct visual means of measurement; and
  • The 2L+ Fixation Rod fills the cannulation to prevent graft from moving into the rod from the disc space. The Fixation Rod also fixates the S1 Anchor and L4-L5 Rod together such that these components cannot passively separate.

Based on indications for use listed by the FDA for the AxiaLIF® System (K073514), the AxiaLIF® II TM System (K073643), and the AxiaLIF® 2L+TM System (as described above), we also were concerned that all of these devices involve the treatment of the same or similar type of disease and the same or similar patient population. With respect to whether a product is assigned to the same or different DRG, we noted in the proposed rule that currently the AxiaLIF® System and the AxiaLIF® 2L+TM System both generally map to MS-DRGs 459 (Spinal Fusion Except Cervical with MCC) and 460 (Spinal Fusion Except Cervical without MCC). Though the AxiaLIF® II TM System is no longer on the market, it would also map to the same DRGs.

If the AxiaLIF® 2L+TM System is found to be substantially similar to the AxiaLIF® System or the AxiaLIF® II TM System, the AxiaLIF® 2L+TM System would no longer qualify for the new technology add-on payment. Specifically, the appropriate start date for the AxiaLIF® 2L+TM System would be the start date of the device that is found to be substantially similar to the AxiaLIF® 2L+TM System. As noted above, the AxiaLIF® II TM System received FDA approval on April 28, 2008. The 3-year newness period for the AxiaLIF® II TM System ends prior to the start of FY 2012 (July 28, 2011). Given the length of time since the AxiaLIF® II TM System's entry into the market, cost-related data for the AxiaLIF® II TM System is already reflected in the most recent MS-DRG relative weights. Additionally, the AxiaLIF® System received multiple FDA approvals, the most recent of which was on January 11, 2008. The 3-year newness period for the AxiaLIF® System also ends prior to the start of FY 2012 (January 11, 2011). Given the length of time since the AxiaLIF® System's entry into the market, cost-related data for the AxiaLIF® System is already reflected in the most recent MS-DRG relative weights. However, if the AxiaLIF® 2L+TM System is not substantially similar to any of the predicate devices mentioned above, then the newness period for the AxiaLIF® 2L+TM System would begin on January 21, 2010 (the AxiaLIF® 2L+TM System's FDA approval date) and would be within the year newness period for FY 2012.

We invited public comment regarding whether or not the AxiaLIF® 2L+TM System meets the newness criteria, and, in particular, whether it is substantially similar to the AxiaLIF® System or the AxiaLIF® II TM System. We did not receive any public comments regarding the newness criteria or the substantial similarity of the AxiaLIF® 2L+TM System to the AxiaLIF® System or the AxiaLIF® II TM System.

In the proposed rule, we also expressed concerns with the applicant's methodology for demonstrating that it met the cost criterion. Specifically, in determining the projected standardized charge for the AxiaLIF® 2L+TM System, the applicant relied on a charge markup for defibrillators because it is also a high-cost implantable device for which a hospital purchase price is known. We were concerned about whether more direct data or different proxies are available, including a charge markup for the AxiaLIF® System or AxiaLIF® II TM System. In reviewing the applicant's charge markup, we also were concerned about the source data for determining the 2.77 charge markup ratio for defibrillators. We invited public comment on whether the AxiaLIF® 2L+TM System meets the cost criterion for a new technology add-on payment for FY 2012.

We did not receive any public comments that addressed our concerns regarding the cost criterion for new technology add-on payment.

With respect to the substantial clinical improvement criterion, the applicant asserted that it meets this criterion in its application. The applicant stated that substantial clinical improvement is demonstrated by the AxiaLIF® 2L+TM System's facilitation of spinal fusion surgery without a laparotomy. By avoiding a laparotomy, the AxiaLIF® 2L+TM System reduces blood loss, postoperative pain, narcotic use, denervation, morbidity, the probability of complications, and the risk of trauma to the tissue area surrounding the lumbar. The applicant further stated that the AxiaLIF® 2L+TM System reduces morbidity and has reduced risk of injuring vital organs and important intrinsic stabilizing structures, with a lower complication profile than traditional open fusion techniques. The applicant noted that long-term results can include better support of lordosis and prevention of adjacent level disease. In the proposed rule, we also expressed concern that thisdoes not demonstrate a substantial clinical improvement from the AxiaLIF® II TM System, which also facilitated spinal fusion surgery without a laparotomy.

The applicant has not conducted clinical trials, but the 300 cases of AxiaLIF® 2L+TM System's use (through the Limited Market Release) yielded a complication rate of 0.7 percent. The applicant also asserts that the pre-sacral approach results in a lower average length of stay than a non-sacral approach.

The applicant referred us to several sources of literature presenting data related to the pre-sacral approach for the applicant's AxiaLIF® device. Again, we expressed concern that the applicant generally repeated the statements made regarding the clinical improvement of its AxiaLIF® device and had not provided information that indicates that the AxiaLIF® 2L+TM System offers a substantial clinical benefit over the earlier AxiaLIF® or AxiaLIF® II TM devices. Moreover, the applicant failed to provide any clinical outcomes data for the AxiaLIF® 2L+TM System to substantiate its assertions regarding substantial clinical improvement for the AxiaLIF® 2L+TM System. While the applicant maintains that data from the AxiaLIF® device are relevant and can be used to substantiate its assertions for the AxiaLIF® 2L+TM System, we were concerned that data directly associated with the use of the AxiaLIF® 2L+TM System are not available. For example, we stated in the proposed rule that it was not clear the degree to which the population that required treatment with the AxiaLIF® 2L+TM System differed from the population that required treatment with the AxiaLIF® device or the AxiaLIF® II TM System, and that it was also not clear the degree to which the differences amongst the devices discussed above may affect clinical outcomes. We invited public comments on whether the AxiaLIF® 2L+TM System meets the substantial clinical improvement criterion for the new technology add-on payment for FY 2012. We did not receive any public comments regarding the substantial clinical improvement criterion.

We did not receive any public comments with regard to this application. In the absence of comments with information addressing our various concerns with this application, we are not approving the AxiaLIF® 2L+TM System for new technology add-on payments for FY 2012.

b. PerfectCLEAN With Micrillon®

UMF Corporation (the manufacturer) submitted an application for a technology called the PerfectCLEAN with Micrillon® (PerfectCLEAN). PerfectCLEAN is a cleaning textile product (or cleaning mat/wipe) with chlorine embedded or bound to the extruded fiber. The manufacturer asserts that PerfectCLEAN is intended to be used to trap and eliminate pathogens such as Methicillin-resistant Staphylococcus aureus (MRSA), Clostridium difficile (C diff.) and the H1N1 flu virus from surfaces within the hospital (as well as other health care facilities and locations). The applicant asserts that it can trap and remove more than 99.99 percent of bacteria on hard surfaces.

The manufacturer stated that the PerfectCLEAN is an Environmental Protection Agency (EPA) approved antimicrobial/disinfectant that will be available on the market in the first quarter of 2011. The applicant maintains that PerfectCLEAN is subject to review and approval by the EPA per the EPA's Federal Insecticide, Fungicide, Rodenticide Act (FIFRA) Treated Article Exemption and, therefore, is not subject to review by the FDA. The applicant states that it was determined in a pre-registry meeting with the EPA that the underlying chemistries used to create the chlorine binding effects of Micrillon® chemistry are EPA and FDA approved even though no FDA claims are being sought.

With respect to whether the PerfectCLEAN is eligible for new technology add-on payments, in the proposed rule we noted that our regulations at § 412.87(c) state, “CMS will only consider, for add-on payments for a particular fiscal year, an application for which the new medical service or technology has received FDA approval or clearance by July 1 prior to the particular fiscal year.” FDA “approval,” refers to the premarket approval application (PMA) process for most Class III devices, and FDA “clearance” refers to the 510(k) premarket notification submission process for most Class II devices and some Class I and Class III devices (section 515 of the Food, Drug and Cosmetic Act (FDCA) for PMA) and sections 510(k) and 513(i) of the FDCA (for premarket notification submission process)). Therefore, we believe our regulations, by requiring applicants to receive an FDA approval or clearance in order to be eligible for new technology add-on payments, limit the universe of items and services eligible to receive these payments to those that require FDA approval or clearance. The applicant has informed CMS that it is in the process of registering and listing its product with the FDA under section 510(b) through (d) and (j) and anticipates this process to be completed prior to the July 1 regulatory deadline. The registration process that the applicant is currently pursing will result in neither FDA approval nor clearance. In the proposed rule, we stated that we were therefore concerned that the PerfectCLEAN is not eligible for new technology add-on payments under our existing regulations, which require “FDA approval or clearance by July 1 prior to the particular fiscal year” (42 CFR § 412.87(c)). We welcomed public comments on whether the PerfectCLEAN is eligible for new technology add-on payments under the current regulations.

We did not receive any public comments in response to our concern that the PerfectCLEAN does not meet the newness criteria. Therefore, we conclude that the PerfectCLEAN does not meet the requirement specified under § 412.87(c) of our regulations that we requires applicants to receive an FDA approval or clearance by July 1 prior to the particular fiscal year, rather than registering and listing its product with the FDA, in order to be eligible for new technology add-on payments. As a result, we are not approving new technology add-on payments for the PerfectCLEAN for FY 2012. However, we will consider whether it would be appropriate for a product that is registered and listed with the FDA to be eligible for new technology add-on payments. If we conclude that such products should be eligible for new technology add-on payments in the future, we will propose changes to our regulations in a future rulemaking.

With regard to the cost criterion, the applicant used data from the FY 2011 After Outliers Removed (AOR) file (posted on the CMS Web site) for its cost analysis, which is based on the FY 2009 MedPAR file. The applicant considered MS-DRGs that relate to surgeries, skin abrasions, open sores, wounds, and similar inflamed tissue conditions where infection sites are thought to be more likely to occur for inpatient care situations. This resulted in the applicant determining that the technology would be most frequently used in 622 different MS-DRGs. The applicant noted that the charges from the FY 2011 AOR file were not inflated from FY 2009 to FY 2011; therefore the applicant applied a 2-year inflation factor of 12 percent (to update the charges from FY 2009 to FY 2011). The applicant based the 2-year inflation factor of 12 percent on a 3-year average of the 2 year rate-of-change in charges (the 2-year rate-of-change for FY 2009 of 11.841 percent (73 FR 48764); the 2-year rate-of-change for FY 2010 of 14.184percent (74 FR 44010); and the 2-year rate-of-change for FY 2011 of 9.8843 percent (75 FR 50429)) that CMS uses in its outlier threshold calculation as published in section II. of the Addendum to the annual IPPS final rule. The applicant computed a case-weighted standardized charge per case of $40,442 for all 622 MS-DRGs, which did not include any charges related to the PerfectCLEAN. Therefore, it added the charges related to the technology to the case-weighted average standardized charge per case in evaluating the cost threshold criterion. The manufacturer estimates a charge per patient of $100 per day for the PerfectCLEAN. The applicant includes in this amount charges for payroll, treated textiles, packaging and protective gloves, laundering, storage, and distribution. The applicant multiplied the average length of stay for each MS-DRG (as found in Table 5 of the Addendum to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50547 through 50566)) by the charge per patient per day to determine the total charges per stay by MS-DRG related to the PerfectCLEAN. The applicant added additional charges per stay for the PerfectCLEAN to the case-weighted standardized charge per case and determined a total case-weighted average standardized charge per case of $41,105. Based on the 622 MS-DRGs to which the technology mapped, the applicant computed a case-weighted threshold of $40,834. Because the total case-weighted average standardized charge per case of $41,105 exceeds the case weighted threshold of $40,834, the applicant maintains that it meets the cost criteria.

In the proposed rule, we discussed several concerns regarding the applicant's cost analysis. First, although the technology can potentially be used in every single Medicare case, the application targets specific MS-DRGs. The applicant did not provide a detailed clinical justification regarding their selection of MS-DRGs, or a detailed justification for why the technology could not be used in other MS-DRGs. We believe it would be more appropriate to target all cases in every MS-DRG when conducting the cost analysis for this type of non-procedure or condition specific item. Using the FY 2011 AOR file, we conducted our own analysis with the same methodology above (and inflated the charges and included the total charges per stay related to the PerfectCLEAN) across all MS-DRGs. Based on our analysis, we determined a total case-weighted average standardized charge per case of $29,535. Using the applicant's methodology, we also determined a case-weighted threshold of $37,384 across all MS-DRGs. Because the total case-weighted average standardized charge per case of $29,535 is less than the case-weighted threshold of $37,384, we believe the PerfectCLEAN may not meet the cost criteria.

Second, the applicant included in the average charge per day more general charges unrelated to the specific new technology, such as payroll, packaging and protective gloves, laundering, storage and distribution. We do not believe it is appropriate to include charges for expenses already accounted for in MS-DRG based payments, such as laundering, storage, and distribution, and supplies already used by hospital staff such as packaging and protective gloves. We also note that the applicant states in its substantial clinical improvement discussion that the PerfectCLEAN represents the first comprehensive process for the removal and elimination of harmful micro-organisms responsible for HAIs from patient environments, the elimination of cross-contamination, and significant savings across many cost centers. If the PerfectCLEAN is a substitute for other cleaning mechanisms such as wiping down a hospital room with a spray and can produce significant savings across many cost centers, then it would be appropriate to deduct some charges from the average charge per day in order to accurately reflect the cost to hospitals of this technology. For these reasons, we remain concerned about the accuracy of the computation of a charge per patient of $100 per day and whether the PerfectCLEAN meets the cost criterion.

Thirdly, the applicant based the 12-percent, 2-year rate-of-change in charges on a 3-year average (FY 2009 through FY 2011) of the 2-year rate-of-change in charges as published in section II. of the Addendum to the annual IPPS final rule. We do not believe it is appropriate to use a 3-year average of the 2-year rate-of-change in charges as the 2-year rate-of-change in charges already uses the most recent data available to measure this change and, therefore, does not need to be averaged with prior years. Specifically, as described in section II. of the Addendum to this final rule, to calculate the proposed FY 2012 2-year rate-of-change in charges, we compared the 1-year average annualized rate-of-change in charges per case from the last quarter of FY 2009 in combination with the first quarter of FY 2010 (July 1, 2009 through December 31, 2009) to the last quarter of FY 2010 in combination with the first quarter of FY 2011 (July 1, 2010 through December 31, 2010). This rate-of-change was 4.43 percent (1.044394) or 9.07 percent (1.090759) over 2 years. If we substitute the FY 2012 proposed 2-year rate-of-change in charges of 9.07 percent for the 12-percent 3-year average of the 2-year rate-of-change in charges that the applicant used in its cost analysis, the total case-weighted average standardized charge per case would be $40,047 across the 622 MS-DRGs to which the applicant believes the technology would map. As mentioned above, the applicant computed a case-weighted threshold of $40,834. Because the total case-weighted average standardized charge per case of $40,047 is less than the case-weighted threshold of $40,834, it appears the applicant would not meet the cost criteria. We invited public comment on whether the PerfectCLEAN meets the cost criterion.

Comment: Several commenters expressed concerns that the cost estimates assume that this product would replace other items currently used in the hospital.

Response: As mentioned above, because PerfectCLEAN does not meet the requirements specified under § 412.87(c) of our regualtions it was not approved for FY 2012 new technology add-on payments. Once an applicant does not meet one of our criteria (newness, cost and substantial clinical improvement; in that order), we typically do not respond to public comments on the rest of the new technology add-on payment criteria. However, we are responding to the public comment above to ensure our cost criteria policy is clear.

The applicant substituted and added charges related to their product as part of its efforts to demonstrate that the product's costs exceed the cost threshold. While we have concerns regarding certain aspects of the applicant's methodology, it is common practice for new technology add-on payment applicants to substitute and/or add charges related to their technology in order to develop an average standardized charge per case to demonstrate that a technology exceeds the cost threshold.

The applicant maintained that it met the substantial clinical improvement criteria for the following reasons: The applicant believes the PerfectCLEAN significantly improves clinical outcomes for a patient population as compared to currently available treatments, decreases rate of subsequent diagnostic or therapeutic interventions, and decreases the number of future hospitalizations or physician visits. The applicant cited independent laboratory studies that set forth the level of removal and elimination of pathogens achieved bythe PerfectCLEAN. The applicant stated that the PerfectCLEAN includes “more precise and focused patient room procedures that when properly applied utilize the textile and micro-denier efficacies” listed in the product's independent test reports. The applicant stated that this results “in a safer patient environment where the likelihood of cross contamination is reasonable.” The applicant included test report data for the product, which demonstrated a 99.99 percent effectiveness of removing pathogens such as MRSA and C diff. The applicant cited industry and clinical support to demonstrate that improved patient environment can save lives. The applicant also stated that PerfectCLEAN represents the first comprehensive process for the removal and elimination of harmful micro-organisms responsible for hospital acquired infections from patient environments, the elimination of cross-contamination, and significant savings across many cost centers. The applicant stated that this new innovative system delivers reliable and repeatable results not currently achieved using currently available protocols and products. The applicant provided the following example: a traditional method of disinfection is to apply liquid disinfectants, which the applicant stated typically requires a 10-minute dwell time (which in most cases is not completed by the hospital) and then wiping or mopping up the nonevaporated liquids. Compared to this method, the applicant asserts that the PerfectCLEAN first removes the micro-organisms from those surfaces using specially designed microscopic fibers. The applicant asserted that these pathogens are trapped in a formulation of a chlorine binding technology which eliminates the pathogens.

The applicant further asserted that the PerfectCLEAN maintains its disinfecting capability longer than other methods because the chlorine-binding technology is introduced at the pellet stage of fiber extrusion so that it is present throughout the fiber, as opposed to a finish or coating process that wears off as textiles are used and laundered. Additionally, the applicant asserted that the technology's non-leaching chlorination system recharges in the wash process by attracting and binding free molecules of chlorine. The applicant further asserted that in this way the PerfectCLEAN recharges back to its original strength and efficacy which allows it to work more rapidly than other techniques. The applicant asserted that this reduces cross-contamination by those persons handling soiled textiles after the people contact surfaces which have been cleaned of harmful micro-organisms. The applicant added that the training in use of color coated textiles (different color mats) affords superior monitoring and compliance supervision of the hygiene specialists charged with responsibility to reduce cross contamination. We invited public comment on whether the PerfectCLEAN meets the substantial clinical improvement criterion.

Comment: Several commenters opposed consideration of this product for new technology add-on payments. The commenters stated that neither CMS nor the applicant provided sufficient supporting data to approve this technology for add-on payments. The commenters also stated that a cursory review of information sources on this product, including the company's own Web site, did not identify any scientific, peer-reviewed studies demonstrating efficacy against cross transmission, or prevention or mitigation of Healthcare-Acquired Infections (HAIs). The commenters urged CMS not to approve the application for new technology add-on payments for this or any product that lacks scientific evidence of its efficacy and urged CMS to use objective rigor to evaluate the methodological quality and strength of evidence submitted in support of new technology add-on payment applications.

Response: Because PerfectCLEAN does not meet the requirements specified under § 412.87(c) of our regulations (and was not approved for FY 2012 new technology add-on payments), we are not responding to these public comments in this final rule.

III. Changes to the Hospital Wage Index for Acute Care Hospitals

A. Background

Section 1886(d)(3)(E) of the Act requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.” In accordance with the broad discretion conferred under the Act, we currently define hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB). A discussion of the FY 2012 hospital wage index based on the statistical areas, including OMB's revised definitions of Metropolitan Areas, appears under section III.B. of this preamble.

Beginning October 1, 1993, section 1886(d)(3)(E) of the Act requires that we update the wage index annually. Furthermore, this section of the Act provides that the Secretary base the update on a survey of wages and wage-related costs of short-term, acute care hospitals. The survey must exclude the wages and wage-related costs incurred in furnishing skilled nursing services. This provision also requires us to make any updates or adjustments to the wage index in a manner that ensures that aggregate payments to hospitals are not affected by the change in the wage index. The adjustment for FY 2012 is discussed in section II.B. of the Addendum to this final rule.

As discussed below in section III.H. of this preamble, we also take into account the geographic reclassification of hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the Secretary is required to adjust the standardized amounts so as to ensure that aggregate payments under the IPPS after implementation of the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to the aggregate prospective payments that would have been made absent these provisions. The budget neutrality adjustment for FY 2012 is discussed in section II.A.4.b. of the Addendum to this final rule.

Section 1886(d)(3)(E) of the Act also provides for the collection of data every 3 years on the occupational mix of employees for short-term, acute care hospitals participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index. A discussion of the occupational mix adjustment that we are applying beginning October 1, 2011 (the FY 2012 wage index) appears under section III.C. of this preamble.

B. Core-Based Statistical Areas for the Hospital Wage Index

The wage index is calculated and assigned to hospitals on the basis of the labor market area in which the hospital is located. In accordance with the broad discretion under section 1886(d)(3)(E) of the Act, beginning with FY 2005, we define hospital labor market areas based on the Core-Based Statistical Areas (CBSAs) established by OMB and announced in December 2003 (69 FR 49027). For a discussion of OMB's revised delineations of CBSAs and our implementation of the CBSA definitions, we refer readers to thepreamble of the FY 2005 IPPS final rule (69 FR 49026 through 49032).

As with the FY 2011 final rule, and as we proposed, in this FY 2012 final rule, we are providing that hospitals receive 100 percent of their wage index based upon the CBSA configurations. Specifically, for each hospital, we determined a wage index for FY 2012 employing wage index data from hospital cost reports for cost reporting periods beginning during FY 2008 and using the CBSA labor market definitions. We consider CBSAs that are Metropolitan Statistical Areas (MSAs) to be urban, and CBSAs that are Micropolitan Statistical Areas as well as areas outside of CBSAs to be rural. In addition, it has been our longstanding policy that where an MSA has been divided into Metropolitan Divisions, we consider the Metropolitan Division to comprise the labor market areas for purposes of calculating the wage index (69 FR 49029) (regulations at § 412.64(b)(1)(ii)(A)).

In OMB Bulletin No. 10-2, issued on December 1, 2009, OMB announced that the CBSA changes in that bulletin would be the final update prior to the 2010 Census of Population and Housing. CMS adopted those changes in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50162), beginning October 1, 2010, and they are reflected in this FY 2012 final rule. In 2013, OMB plans to announce new area delineations based on its 2010 standards (75 FR 37246) and the 2010 Census data.

The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/OMB—go to “Agency Information” and click on “Bulletins”.

C. Occupational Mix Adjustment to the FY 2012 Wage Index

As stated earlier, section 1886(d)(3)(E) of the Act provides for the collection of data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program, in order to construct an occupational mix adjustment to the wage index, for application beginning October 1, 2004 (the FY 2005 wage index). The purpose of the occupational mix adjustment is to control for the effect of hospitals' employment choices on the wage index. For example, hospitals may choose to employ different combinations of registered nurses, licensed practical nurses, nursing aides, and medical assistants for the purpose of providing nursing care to their patients. The varying labor costs associated with these choices reflect hospital management decisions rather than geographic differences in the costs of labor.

1. Development of Data for the FY 2012 Occupational Mix Adjustment Based on the 2007-2008 Occupational Mix Survey

As provided for under section 1886(d)(3)(E) of the Act, we collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program.

For the FY 2010 hospital wage index, we used occupational mix data collected on a revised 2007-2008 Medicare Wage Index Occupational Mix Survey (the 2007-2008 survey) to compute the occupational mix adjustment for FY 2010. (We refer readers to the FY 2010 IPPS final rule (74 FR 43827) for a detailed discussion of the 2007-2008 survey.) Again, for the FY 2011 hospital wage index, we used data from the 2007-2008 survey (including revised data for 45 hospitals) to compute the FY 2011 adjustment.

As we proposed, for the FY 2012 hospital wage index, we again used occupational mix data collected on the 2007-2008 Medicare Wage Index Occupational Mix Survey to compute the occupational mix adjustment for FY 2012. We included data for 3,168 hospitals that also have wage data included in the FY 2012 wage index.

2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index

As stated earlier, section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program. We used occupational mix data collected on the 2007-2008 survey to compute the occupational mix adjustment for FY 2010 and the FY 2011 wage index and are using the 2007-2008 occupational mix survey data in this final rule for the FY 2012 wage index. Therefore, a new measurement of occupational mix will be required for FY 2013.

The new 2010 survey (Form CMS-10079 (2010)) provides for the collection of hospital-specific wages and hours data for calendar year 2010 (that is, payroll periods ending between January 1, 2010 and December 31, 2010) and will be applied beginning with the FY 2013 wage index. The 2010 survey was adopted in theFederal Registeron January 15, 2010 (75 FR 2548) and approved by OMB on February 26, 2010 (OMB control number 0938-0907). The survey is available on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage and through the fiscal intermediaries/MACs. Hospitals were required to submit their completed 2010 surveys to their fiscal intermediaries/MACs by July 1, 2011. The preliminary, unaudited 2010 survey data will be released in early October 2011, along with the FY 2009 Worksheet S-3 wage data, for the FY 2013 wage index review and correction process.

3. Calculation of the Occupational Mix Adjustment for FY 2012

For FY 2012 (as we did for FY 2011), we calculated the occupational mix adjustment factor using the following steps:

Step 1—For each hospital, determine the percentage of the total nursing category attributable to a nursing subcategory by dividing the nursing subcategory hours by the total nursing category's hours. Repeat this computation for each of the four nursing subcategories: (1) Registered nurses; (2) licensed practical nurses; (3) nursing aides, orderlies, and attendants; and (4) medical assistants.

Step 2—Determine a national average hourly rate for each nursing subcategory by dividing a subcategory's total salaries for all hospitals in the occupational mix survey database by the subcategory's total hours for all hospitals in the occupational mix survey database.

Step 3—For each hospital, determine an adjusted average hourly rate for each nursing subcategory by multiplying the percentage of the total nursing category (from Step 1) by the national average hourly rate for that nursing subcategory (from Step 2). Repeat this calculation for each of the four nursing subcategories.

Step 4—For each hospital, determine the adjusted average hourly rate for the total nursing category by summing the adjusted average hourly rate (from Step 3) for each of the nursing subcategories.

Step 5—Determine the national average hourly rate for the total nursing category by dividing total nursing category salaries for all hospitals in the occupational mix survey database by total nursing category hours for all hospitals in the occupational mix survey database.

Step 6—For each hospital, compute the occupational mix adjustment factor for the total nursing category by dividing the national average hourly rate for the total nursing category (from Step 5) by the hospital's adjusted average hourly rate for the total nursing category (from Step 4).

If the hospital's adjusted average hourly rate is less than the national average hourly rate (indicating thehospital employs a less costly mix of nursing employees), the occupational mix adjustment factor is greater than 1.0000. If the hospital's adjusted average hourly rate is greater than the national average hourly rate, the occupational mix adjustment factor is less than 1.0000.

Step 7—For each hospital, calculate the occupational mix adjusted salaries and wage-related costs for the total nursing category by multiplying the hospital's total salaries and wage-related costs (from Step 5 of the unadjusted wage index calculation in section III.F. of this preamble) by the percentage of the hospital's total workers attributable to the total nursing category (using the occupational mix survey data, this percentage is determined by dividing the hospital's total nursing category salaries by the hospital's total salaries for “nursing and all other”) and by the total nursing category's occupational mix adjustment factor (from Step 6 above).

The remaining portion of the hospital's total salaries and wage-related costs that is attributable to all other employees of the hospital is not adjusted by the occupational mix. A hospital's all other portion is determined by subtracting the hospital's nursing category percentage from 100 percent.

Step 8—For each hospital, calculate the total occupational mix adjusted salaries and wage-related costs for a hospital by summing the occupational mix adjusted salaries and wage-related costs for the total nursing category (from Step 7) and the portion of the hospital's salaries and wage-related costs for all other employees (from Step 7).

To compute a hospital's occupational mix adjusted average hourly wage, divide the hospital's total occupational mix adjusted salaries and wage-related costs by the hospital's total hours (from Step 4 of the unadjusted wage index calculation in section III.F. of this preamble).

Step 9—To compute the occupational mix adjusted average hourly wage for an urban or rural area, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the area, then sum the total hours for all hospitals in the area. Next, divide the area's occupational mix adjusted salaries and wage-related costs by the area's hours.

Step 10—To compute the national occupational mix adjusted average hourly wage, sum the total occupational mix adjusted salaries and wage-related costs for all hospitals in the Nation, then sum the total hours for all hospitals in the Nation. Next, divide the national occupational mix adjusted salaries and wage-related costs by the national hours. The FY 2012 occupational mix adjusted national average hourly wage is $36.2481.

Step 11—To compute the occupational mix adjusted wage index, divide each area's occupational mix adjusted average hourly wage (Step 9) by the national occupational mix adjusted average hourly wage (Step 10).

Step 12—To compute the Puerto Rico specific occupational mix adjusted wage index, follow Steps 1 through 11 above. The FY 2012 occupational mix adjusted Puerto Rico-specific average hourly wage is $15.4142.

The table below is an illustrative example of the occupational mix adjustment.

BILLING CODE 4120-01-P

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Image #ER18AU11.015

BILLING CODE 4120-01-C

Because the occupational mix adjustment is required by statute, all hospitals that are subject to payments under the IPPS, or any hospital that would be subject to the IPPS if not granted a waiver, must complete the occupational mix survey, unless the hospital has no associated cost report wage data that are included in the FY 2012 wage index. For the FY 2007-2008 survey, the response rate was 90.8 percent.

In computing the FY 2012 wage index, if a hospital did not respond to the occupational mix survey, or if we determined that a hospital's submitted data were too erroneous to include in the wage index, we assigned the hospital the average occupational mix adjustment for its labor market area. This method has the least impact on the wage index for other hospitals in the area. For areas where no hospital submitted data for purposes of calculating the occupational mix adjustment, we applied the national occupational mix factor of 1.0000 in calculating the area's FY 2012 occupational mix adjusted wage index. In addition, if a hospital submitted a survey, but that survey data could not be used because we determined the survey data to be aberrant, we also assigned the hospital the average occupational mix adjustment for its labor market area. For example, if a hospital's individual nurse category average hourly wages were out of range (that is, unusually high or low), and the hospital did not provide sufficient documentation to explain the aberrancy, or the hospital did not submit any registered nurse salaries or hours data, we assigned the hospital the average occupational mix adjustment for the labor market area in which it is located.

In calculating the average occupational mix adjustment factor for a labor market area, we replicated Steps 1 through 6 of the calculation for the occupational mix adjustment. However, instead of performing these steps at the hospital level, we aggregated the data at the labor market area level. In following these steps, for example, for CBSAs that contain hospitals that did not submit occupational mix survey data, the occupational mix adjustment factor ranged from a low of 0.9246 (CBSA 17780, College Station-Bryan, TX), to a high of 1.0761 (CBSA 19, Rural Louisiana). Also, in computing a hospital's occupational mix adjusted salaries and wage-related costs for nursing employees (Step 7 of the calculation), in the absence of occupational mix survey data, we multiplied the hospital's total salaries and wage-related costs by the percentage of the area's total workers attributable to the area's total nursing category. For FY 2012, there are five CBSAs (that include six hospitals) for which we did not have occupational mix data for any of its hospitals. The CBSAs are:

  • CBSA 36140, Ocean City, NJ (1 hospital)
  • CBSA 22140, Farmington, NM (1 hospital)
  • CBSA 41900, San German-Cabo Rojo, PR (2 hospitals)
  • CBSA 49500, Yauco, PR (1 hospital)
  • CBSA 21940, Fajardo, PR (1 hospital)

Since the FY 2007 IPPS final rule, we have periodically discussed applying a hospital-specific penalty to hospitals that fail to submit occupational mix survey data (71 FR 48013 through 48014; 72 FR 47314 through 47315; 73 FR 48580; 74 FR 43832, and 75 FR 50167). During the FY 2008 rulemaking cycle, some commenters suggested a penalty equal to a 1- to 2-percent reduction in the hospital's wage index value or a set percentage of the standardized amount. During the FY 2009 and FY 2010 rulemaking cycles, several commenters reiterated their view that full participation in the occupational mix survey is critical, and that CMS should develop a methodology that encourages hospitals to report occupational mix survey data but does not unfairly penalize neighboring hospitals. We indicated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule that, while we were not proposing a penalty at that time, we would consider the public comments we previously received, as well as any public comments on the proposed rule, as we developed the FY 2011 wage index.

In the FY 2011 IPPS/LTCH PPS proposed and final rules (75 FR 23943 and 50167, respectively), we stated that, in order to gain a better understanding of why some hospitals are not submitting the occupational mix data, we will require hospitals that do not submit occupational mix data to provide an explanation for not complying. This requirement will be effective beginning with the new 2010 occupational mix survey (the 2010 survey is discussed in section III.C.2. of this preamble). We will instruct fiscal intermediaries/MACs to begin gathering this information as part of the FY 2013 wage index desk review process. We note that we reserve the right to apply a different approach in future years, including potentially penalizing nonresponsive hospitals.

D. Worksheet S-3 Wage Data for the FY 2012 Wage Index

The FY 2012 wage index values are based on the data collected from the Medicare cost reports submitted by hospitals for cost reporting periods beginning in FY 2008 (the FY 2011 wage index was based on data from cost reporting periods beginning during FY 2007).

1. Included Categories of Costs

The FY 2012 wage index includes the following categories of data associated with costs paid under the IPPS (as well as outpatient costs):

  • Salaries and hours from short-term, acute care hospitals (including paid lunch hours and hours associated with military leave and jury duty)
  • Home office costs and hours
  • Certain contract labor costs and hours (which includes direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services, and certain contract indirect patient care services (as discussed in the FY 2008 final rule with comment period (72 FR 47315))
  • Wage-related costs, including pensions and other deferred compensation costs.
2. Changes to the Reporting Requirements for Pension Costs for the Medicare Wage Index
a. Background

The instructions for determining and reporting costs of qualified defined benefit pension on the cost report for Medicare cost-finding purposes are located in section 2142 of the Provider Reimbursement Manual, Part I (PRM-I). For Medicare wage index purposes, the instructions in section 3605.2 of the Provider Reimbursement Manual, Part II (PRM-II) for Worksheet S-3, Part II, Lines 13 through 20, require hospitals to comply with the requirements in section 2142 of the PRM-I.

Specifically, section 2142.5 of the PRM-I defines the current period liability for pension cost (that is, the maximum allowable pension cost) based on the actuarial accrued liability, normal cost, and unfunded actuarial liability. Under section 2142.4(A) of the PRM-I, these liability measurements are to be computed in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), regardless of whether or not the pension plan is subject to ERISA. Also, section 2142.6(A) of the PRM-I requires the current period liability for pension costs to be funded in order to be allowable. In addition, section 2142.6(C) of the PRM-I allows for funding in excess ofthe current period liability to be carried forward and recognized in future periods. We note that, on March 28, 2008, CMS published Revision 436, a technical clarification to section 2142 of the PRM-I.

Under ERISA, the actuarial accrued liability and normal cost are typically determined on an ongoing plan basis using long-term, best-estimate assumptions. The interest assumption reflects the average rates of return expected over the period during which benefits were payable, taking into account the investment mix of plan assets. Pension costs for plans not subject to ERISA (such as church plans and plans sponsored by public sector employers) are also typically based on the actuarial accrued liability and normal cost using long-term, best estimate assumptions.

The Pension Protection Act (PPA) of 2006 (Pub. L. 109-280) amended ERISA. Under the PPA amendments to ERISA, the actuarial accrued liability and normal cost are no longer used as a basis for determining ERISA minimum required or maximum tax deductible contributions. ERISA contribution limits are now based on a “funding target” and “target normal cost” measured on a settlement basis using the current market interest rates for investment grade corporate bonds that match the duration of the benefit payouts. The Internal Revenue Service (IRS) publishes the applicable interest rate tables on a monthly basis. Because pension liabilities are very sensitive to changes in the interest rate used to discount future benefit payouts, pension costs based on the PPA “funding target” and “target normal cost” values are expected to be less stable than those based on the pre-PPA traditional long-term, best-estimate assumptions, which change infrequently. Furthermore, plans not subject to the ERISA requirements, as amended by the PPA, are not likely to use the new “funding target” and “target normal cost” basis for determining pension costs, and ERISA plans are not likely to continue to report costs developed using the actuarial accrued liability and normal cost based on long-term, best estimate assumptions. Accordingly, there is no longer a standard actuarial basis used by all plans.

In response to the PPA amendments to ERISA, we began a review of the rules for determining pension costs for Medicare cost finding and wage index purposes. As an interim measure, we issued a Joint Signature Memorandum (JSM) in November 2009 that contained instructions and a spreadsheet to assist hospitals and Medicare contractors in determining the annual allowable defined benefit pension cost for the FY 2011 wage index (JSM/TDL-10061, 11-20-09, December 3, 2009). Although these instructions were released for purposes of the wage index, they also serve as interim guidance for Medicare cost-finding purposes.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25874 through 25876), we proposed to revise our policy for determining pension cost for Medicare purposes. As mentioned above, due to the ERISA rules, as amended by the PPA, there is no longer a standard actuarial cost basis used by all types of plans. Therefore, we proposed to no longer rely on actuarial computations to determine the maximum annual cost limitation for Medicare. Instead, the general parameters of our policy would maintain the current requirement that pension costs must be funded to be reportable, and would require all hospitals to report the actual pension contributions funded during the reporting period, on a cash basis.

In addition, under this cash basis approach, we proposed separate methodologies for measuring pension costs for Medicare cost-finding purposes (discussed in section IV.M. of this preamble) and for purposes of updating the wage index (discussed below in section III.D.2.b. of this preamble). It is necessary to have two distinct policies in order to address the different goals of determining a hospital's payments and updating the average hourly wage to establish the geographic area wage index. The function of the wage index is to measure relative hospital labor costs across areas. This function is distinct from Medicare payment determinations, where the goal is to measure the actual costs incurred by individual hospitals. These two distinct policies would require separate updated instructions to section 2142 of the PRM-I for Medicare cost-finding purposes and section 3605.2 of the PRM-II for purposes of the wage index. Below is a detailed discussion of our proposal for reporting pension costs under the wage index, as well as our final policy. A full discussion of our new methodology for Medicare cost-finding purposes is discussed in section IV.M. of this preamble, along with a summary of the public comments we received, our responses, and statements of our final policy.

The final policy below reflects our commitment to the general principles of the President's Executive Order released January 18, 2011, entitled “Improving Regulation and Regulatory Review.”

b. Proposed and Final Policy for Allowable Pension Cost for the Medicare Wage Index

As mentioned above, the function of the Medicare wage index is to measure relative hospital labor costs across all areas. Therefore, while we believe pension costs must be funded in order to be reportable (we refer readers to the August 12, 2010Federal Register(74 FR 47369) for an explanation of this longstanding policy), it also is important for pension costs to be relatively stable from year to year so that there is less volatility in the wage index. Thus, in the FY 2012 IPPS/LTCH PPS proposed rule, we proposed to include, in the wage index, pension costs equal to a hospital's average actual cash contributions deposited to its defined benefit pension plan over a 3-year period. The use of cash contributions as a measure of the costs incurred is necessary to ensure uniformity among all hospitals, regardless of their tax status or ERISA coverage. The 3-year average is intended to reduce the volatility that often occurs due to timing of contributions. Most pension plan sponsors have flexibility to determine the pension funding for a particular period and their decisions may be based on cash-flow considerations or other factors unrelated to the normal operation of the plan. Furthermore, the funding of current period pension costs may be delayed by almost a full year after the close of the period to which it applies. By using a 3-year average, we hope to enhance the stability of the wage index.

To ensure that the average annual pension cost reflected in the wage index is consistent with the reporting period applicable to all other costs included in the index, we proposed that the 3-year average be centered on the current cost reporting period for the wage index. For example, the 2013 wage index is based on cost reporting periods beginning during Federal Fiscal Year (FFY) 2009 and would therefore reflect the average pension contributions made in hospitals' cost reporting periods beginning during FFYs 2008, 2009, and 2010. Thus, this policy would require pension plan contribution data for the cost reporting periods immediately preceding and immediately following the current cost reporting period for the wage index.

In the proposed rule, we indicated that we do not anticipate that the use of contributions made in the period immediately following the current cost reporting period will create an administrative burden because, even under the existing rule, contributions tofund current period costs are often deferred until the following period. In addition, trust account statements and general ledger reports to support the contributions should be readily available.

We proposed to apply the above methodology for reporting pension costs for the wage index beginning with the FY 2013 IPPS update. We solicited public comment on this policy proposal and indicated that we were especially interested in receiving comments related to the proposed 3-year averaging period.

Comment: A number of commenters suggested that CMS convene a Medicare Technical Advisory Group (MTAG) before establishing a policy on pension costs.

Response: An MTAG is not required by statute. Engaging in notice and comment rulemaking provides sufficient process for developing a policy on this issue. In addition, timeliness of an updated rule is needed because the actuarial terminology used in section 2142 of the PRM-I is no longer used under ERISA as amended by the PPA. Also, as many commenters noted, there have been numerous appeals related to pension cost adjustments in recent years, and we believe our policy will alleviate the confusion demonstrated by such appeals. Proposing the issue through the notice and comment rulemaking process will allow CMS to address the issue by finalizing the policy effective October 1, 2011.

Comment: Many commenters supporting an MTAG also stated that an MTAG might recommend adoption of Generally Accepted Accounting Principles (GAAP) (with no funding limit) for the wage index. These commenters generally called for CMS to propose a methodology that accurately reflects the total resources hospitals expend over the life of their defined benefit plans and recognizes those costs fully in the wage index. They implied that GAAP could be the most appropriate method to satisfy this goal. One commenter noted that a proposal to base pension expense for both the wage index and cost-finding purposes on a 3-year average of actual funding is inconsistent with the other principles of the cost report relying on GAAP and accrual versus cash-basis accounting.

Response: There is no consistently applied, standardized pension cost accounting methodology that produces a stable measure of the actual cost incurred over the life of a pension plan. Moreover, not all providers are subject to the same GAAP standards, and the rules applicable to pension costs under the various standards are not consistent. Uniformity of costs for the wage index would require all providers to compute pension costs under a particular GAAP standard. This would create an administrative burden for some and would limit transparency.

Even under GAAP as promulgated by the Financial Accounting Standards Board (FASB), significant inconsistencies may exist because the rules allow gains and losses to either be recognized immediately (as a current period cost), or spread over future periods. Until recently, immediate recognition of gains and losses was seldom used because it can cause pension costs to be extremely volatile. For example, those who have adopted immediate recognition of gains and losses are likely to see their GAAP pension costs shift to pension income (negative costs) when interest rates begin to rise.

Finally, the GAAP standards are currently in a state of flux. The Government Accounting Standards Board (GASB) and the International Accounting Standards Board (IASB) are both in the process of reviewing their rules for pension accounting. The FASB and IASB are discussing how U.S. accounting can be reconciled with international accounting. We anticipate changes in GAAP pension rules will reflect the trend towards mark-to-market financial reporting (immediate recognition of gains and losses) and thereby further increase the potential volatility of those cost measurements.

Comment: Most commenters expressed concern that hospitals with prefunded pension plans would be disadvantaged, while those with underfunded plans would be rewarded. A number of these commenters called for a “true-up” of costs to ensure absolute equity between past and future periods, similar to the carry forward provision in the current PRM.

Response: We continue to believe that absolute equity between past and future periods is not necessary since the wage index is a relative rather than an absolute measure of costs. However, in response to public comments, we agree that it would be appropriate to allow certain prefunded amounts to be reported as pension costs in future periods. Although most plan sponsors follow a relatively stable pattern of funding over time, accelerated funding may have been required due to stock market losses and declining interest rates in recent years. We are particularly sensitive to the fact that many hospitals were required to make contributions in excess of the amount reportable for Medicare purposes to satisfy ERISA requirements based on the “current liability.” We are also aware that some hospitals accelerated their pension plan funding in order to avoid benefit restrictions or other penalties under the PPA amendments to ERISA. As a result, we are finalizing a transition policy based on funding that may have exceeded the amounts reportable for the FY 2007 through FY 2012 wage indexes (cost reports with begin dates during the period of (on or after) October 1, 2002 through (on or before) September 30, 2008). We believe this period is representative of the period when contributions may have exceeded the amounts reportable for Medicare purposes.

Our transition policy will allow providers to establish a prefunding balance equal to (A) minus (B), where (A) is the sum of cash contributions made during a period of consecutive provider cost reporting periods commencing no earlier than October 1, 2002 (the cost reporting period applicable for the FY 2007 wage index), and ending with the cost reporting period applicable for the FY 2012 wage index, and (B) is the sum of pension costs actually reflected in the wage index for the same cost reporting periods. It should be noted that the prefunding balance is not the same as the carry forward amount described in section 2142.6C of the PRM-I since the carry forward amount may include different periods and may include contributions made after the end of the cost reporting period ending immediately prior to the effective date of this new policy.

The transition policy permits a hospital to include 1/10th of the prefunding balance in the wage index pension cost each year commencing with the FY 2013 wage index and ending with the FY 2022 wage index, that is, in 10 equal prefunding installments. Any prefunding installment that is not included in the wage index pension cost for the current cost reporting period cannot be reassigned and added to the wage index pension cost of any subsequent period. To take advantage of all 10 prefunding installments, hospitals must determine and begin claiming the prefunding installment in the pension cost for the FY 2013 wage index. Distributing excess funding over a period of 10 years will ensure that when hospitals have substantial prefunding balances, the amount assigned to any one year will not unduly influence the wage index in that year. An example of how the pension cost (including the prefunding balance) is to be calculated is included in our response to another comment.

For each cost reporting period that a prefunding installment is included in the reported pension cost, the provider must have documentation to support the calculation of the prefunding balance, including the contributions made to the pension plan and pension costs reported in the wage index for each applicable cost reporting period reflected in the calculation. In order to notify the public of this transition policy, we will issue a memorandum to Medicare contractors after the publication of this final policy, requiring them to notify hospitals in writing of these changes. In addition, we plan to post this letter on our Web site and will announce these changes through our regular open door forums.

Comment: A number of commenters expressed support for our proposed rule. One viewed it as a compromise between methods required for private, public, and non-profit entities and thought its simplicity will help to maintain consistency. Another felt it would fairly reflect the actual costs, mitigate year-to-year volatility, and encourage adequate funding. One commenter agreed with our decision to eliminate actuarial based measurements because they were too complex and lead to inconsistency. A number of commenters noted that the Medicare wage index methodology “should be transparent so that it can be easily reviewed and replicated by providers and other constituents, which allows providers and others to have confidence in the resulting indices.”

Response: We appreciate the commenters' support of our proposal. Our final policy is intended to be one of simplicity that will help maintain consistency. We believe that this final policy will satisfy the objectives of a transparent methodology for including pension costs in the wage index.

Comment: One commenter expressed concern that our proposal would hurt financially strapped hospitals that cannot afford to fund their plans. Another commenter believed that the proposal in the proposed rule would understate wage related costs in periods when a provider was not able to fund, and overstate wage costs in other periods. One commenter was concerned that the proposal in the proposed rule would “incent a hospital to ‘over fund’ their plan in a particular year to increase its hourly rate.” One commenter stated that our policy will penalize good management of investments while rewarding bad management.

Response: Our policy is that costs must be funded to be reportable for Medicare purposes. Some providers have no legal obligation to fund their pension liabilities. There may be organizations that cannot afford to maintain their plan and will ultimately terminate the plan with unfunded liabilities. Moreover, some liabilities reflected in current period costs may never materialize due to future gains or benefit cutbacks.

We understand that the level of funding will vary from one period to the next due to financial constraints or other factors, but believe that the 3-year average will help to limit volatility caused by short-term fluctuations.

We do not believe that Medicare wage index policy will have a material effect on the ultimate level of pension plan funding. Because pension contributions made to a qualified trust are generally irrevocable and most providers have limited financial resources, significant overfunding is not likely to occur solely because of Medicare wage index policy.

Over the long term, pension costs may increase or decrease due to changes in plan coverage, benefit levels, or gains and losses from investment performance or other sources. However, these changes would ultimately affect the level of future pension costs regardless of how those costs have been reported in the past. Thus, we do not expect that providers will choose investments with poor returns or elevate their contribution levels for the sole purpose of increasing their wage index.

Comment: Several commenters requested clarification on technical aspects of the proposed rule on timing or procedural issues. There was confusion regarding the treatment of payments made after the end of a fiscal year but within the 1-year period (or 3 years with extension) permitted under the liquidation of liabilities provision in section 2305 of PRM-I.

Response: The pension cost to be reflected in the wage index will be reported on Worksheet S-3, Part II and will equal the average contributions paid, on a cash basis, over the applicable 3-year period (plus any prefunding installment discussed above). The applicable period for the 3-year average includes the current cost reporting period applicable to the wage index (4 year lag), and the periods immediately preceding and immediately following the applicable wage index reporting period. The 3-year average is reportable even if it exceeds the current period contribution. There is no requirement to demonstrate that the 3-year average, prefunding installment or the amount funded in any particular period are necessary to satisfy a liability under ERISA or any other actuarial basis. Since actuarial measurements are not used to compute pension costs under the final policy, there is no longer a need for a crosswalk between the different terminology used by IRS and GAAP.

For a new plan, the averaging period will be limited to the number of years the plan was in effect. If there is a merger (plan or corporate), contributions should include a provider's pension plan payments made either to a predecessor plan or the current plan during the applicable 3-year period. Increased costs attributable to benefit improvements will be recognized when funded. This is consistent with the amortization of costs associated with plan changes under GAAP and ERISA.

The actual funded amounts for each cost reporting period to be included in the average will not necessarily appear on the cost report for the period in which they were made. We are considering modifications to the cost report to allow for reporting of current period contributions. Instead, provider will be required to obtain contribution data from the pension trustee, insurance carrier, Schedule B or SB of IRS Form 5500, and, if applicable, from accounting records showing the allocation of total plan contributions to each participating provider. These records should be maintained as needed for subsequent periods.

The following is an example of the calculation of pension cost to be included in the FY 2013 wage index calculation for a hospital with a June 30 fiscal year end and a June 30 cost reporting period:

Wage index yearProvider fiscal yearBeginningEndingTotal pension contributionsReported wage index pension cost
20077/1/20036/30/2004$3,200,000$2,500,000
20087/1/20046/30/2005not available2,800,000
20097/1/20056/30/20061,300,000800,000
20107/1/20066/30/20072,700,0003,000,000
20117/1/20076/30/20084,100,0003,600,000
20127/1/20086/30/20093,000,000200,000
20137/1/20096/30/20101,000,000
7/1/20106/30/20112,000,000

Since this hospital can only produce supporting documentation of contributions for the continuous fiscal years beginning 2005 through 2008, the determination of the prefunding balance must exclude contributions from fiscal years beginning (FYB) in 2003 and 2004. The sum of contributions made during FYB in 2005 through 2008 is $11,100,000. The sum of pension costs reflected in the wage index for FYB in 2005 through 2008 is $7,600,000. The prefunding balance is $3,500,000 ($11,100,000—$7,600,000) and the prefunding installment is $350,000 ($3,500,000/10). The $350,000 prefunding installment can be added to the pension costs reported each year for the FY 2013 through FY 2022 wage index.

In this illustration, the hospital determines the 3-year average pension contribution for the FY 2013 wage index is $2,000,000 based on cash contributions made during FYB in 2008, 2009, and 2010. It should report pension costs of $2,350,000 (the sum of the current 3-year average contribution of $2,000,000 [($1,000,000 + $3,000,000 + $2,000,000) 3] plus the prefunding installment of $350,000) on Worksheet S-3, Part II for the FY 2013 wage index. For audit purposes, the hospital must retain and make available its supporting documentation for the 3-year average, the prefunding balance and prefunding installment.

We note that contributions are to be determined on a cash basis rather than an accrual basis. Since there is no recognition of funding which occurs after June 30, 2011, all of the data needed to determine the pension cost for the FY 2013 wage index will be readily available when the reporting process begins in October 2011. Under this final policy, neither section 2142 nor 2305 will be applicable for wage index purposes.

Comment: One commenter believed that we may be “attempting retroactive rulemaking.” Another commenter stated that “if it goes forward with the proposal or a revised version of the proposal, CMS should do so in a prospective manner * * * CMS should apply it only as of the FY 2016 wage index (which would, if using a 3-year rolling average, include pension costs from cost reporting periods beginning during Federal fiscal years 2011, 2012 and 2013).”

Response: We disagree with the commenter that our policy represents retroactive rulemaking. We proposed this change through notice and comment rulemaking and have given the public sufficient time to provide input through public comments before making any policy change concerning the reporting of pension costs under the wage index. The use of data from prior periods to implement prospective policy changes does not constitute retroactive rulemaking. Therefore, we believe we have applied this policy change prospectively.

Comment: One commenter recommended that there should be specific statements in the cost report that pension costs for cost-finding will be treated differently from pension costs for the wage index. The commenter also suggested separate PRM cost reporting instructions for the Medicare cost report versus the Medicare wage index, given that there will be separate methodologies for determining pension costs.

Response: CMS is implementing different pension cost policies for wage index and cost finding purposes. Accordingly, the PRM will be revised to include separate and distinct pension cost provisions for wage index and cost-finding purposes.

We would like to thank the provider community for their public comments on the proposed rule for reporting pension costs for Medicare wage index purposes. After considering their concerns and suggestions, we are finalizing our policy with modifications for reporting pension costs for Medicare wage index purposes. The final policy is effective for the FY 2013 wage index for which the wage index process begins in October 2011.

Under the final policy, the pension cost to be included in the wage index equals a hospital's average cash contributions deposited to its defined benefit pension plan over a 3-year period, or number of years that the hospital has sponsored a defined benefit plan if less than 3 years. Any reversion or other withdrawal of assets from the pension fund or trust is treated as a negative contribution for purposes of measuring the 3-year average. The 3-year average is centered on the base cost reporting period for the wage index. For example, the FY 2013 wage index will be based on Medicare cost reporting periods beginning during FFY 2009 and will reflect the average pension contributions made in hospitals' cost reporting periods beginning during FFYs 2008, 2009, and 2010.

In response to the public comments as discussed above, we are finalizing a transition policy that permits a hospital to determine a “prefunding balance” based on pension contributions made but not reflected in the wage index during certain prior periods. Our transition policy will allow providers to establish a prefunding balance equal to (A) minus (B), where (A) is the sum of cash contributions made during a period of consecutive provider cost reporting periods commencing no earlier than October 1, 2002 (the cost reporting period applicable for the FY 2007 wage index), and ending with the cost reporting period applicable for the FY 2012 wage index, and (B) is the sum of pension costs actually reflected in the wage index for the same cost reporting periods.

The transition policy permits a hospital to include 1/10th of the prefunding balance in the wage index pension cost each year commencing with the FY 2013 wage index and ending with the FY 2022 wage index, that is, in 10 equal prefunding installments. Any prefunding installment that is not included in the wage index pension cost for the current year cannot be reassigned and added to the wage index pension cost of any subsequent year.

3. Excluded Categories of Costs

Consistent with the wage index methodology for FY 2011, the wage index for FY 2012 also excludes the direct and overhead salaries and hours for services not subject to IPPS payment, such as SNF services, home health services, costs related to GME (teaching physicians and residents) and certified registered nurse anesthetists (CRNAs), and other subprovider components that are not paid under the IPPS. The FY 2012 wage index also excludes thesalaries, hours, and wage-related costs of hospital-based rural health clinics (RHCs), and Federally qualified health centers (FQHCs) because Medicare pays for these costs outside of the IPPS (68 FR 45395). In addition, salaries, hours, and wage-related costs of CAHs are excluded from the wage index, for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397).

4. Use of Wage Index Data by Providers Other Than Acute Care Hospitals under the IPPS

Data collected for the IPPS wage index are also currently used to calculate wage indices applicable to other providers, such as SNFs, home health agencies (HHAs), and hospices. In addition, they are used for prospective payments to IRFs, IPFs, and LTCHs, and for hospital outpatient services. We note that, in the IPPS rules, we do not address comments pertaining to the wage indices for non-IPPS providers, other than for LTCHs. Such comments should be made in response to separate proposed rules for those providers.

E. Verification of Worksheet S-3 Wage Data

The wage data for the FY 2012 wage index were obtained from Worksheet S-3, Parts II and III of the Medicare cost report for cost reporting periods beginning on or after October 1, 2007, and before October 1, 2008. For wage index purposes, we refer to cost reports during this period as the “FY 2008 cost report,” the “FY 2008 wage data,” or the “FY 2008 data.” Instructions for completing Worksheet S-3, Parts II and III are in the Provider Reimbursement Manual (PRM), Part II, sections 3605.2 and 3605.3. The data file used to construct the wage index includes FY 2008 data submitted to us as of June 27, 2011. As in past years, we performed an intensive review of the wage data, mostly through the use of edits designed to identify aberrant data.

We asked our fiscal intermediaries/MACs to revise or verify data elements that result in specific edit failures. For the proposed FY 2012 wage index, we identified and excluded 23 providers with data that was too aberrant to include in the proposed wage index, although we stated that if data elements for some of these providers are corrected, we intended to include some of these providers in the FY 2012 final wage index. We have received corrected data for seven providers, and therefore, we are including the data for these seven providers in the FY 2012 final wage index. However, we have also determined that the data for three additional providers are too aberrant to include in the FY 2012 final wage index. Thus, in total, we are excluding the data of 27 (23 + 7—3) providers from the FY 2012 final wage index.

In constructing the FY 2012 wage index, we included the wage data for facilities that were IPPS hospitals in FY 2008, inclusive of those facilities that have since terminated their participation in the program as hospitals, as long as those data did not fail any of our edits for reasonableness. We believe that including the wage data for these hospitals is, in general, appropriate to reflect the economic conditions in the various labor market areas during the relevant past period and to ensure that the current wage index represents the labor market area's current wages as compared to the national average of wages. However, we excluded the wage data for CAHs as discussed in the FY 2004 IPPS final rule (68 FR 45397). In the proposed rule, we removed 19 hospitals that converted to CAH status between February 16, 2010, the cut-off date for CAH exclusion from the FY 2011 wage index, and February 15, 2011, the cut-off date for CAH exclusion from the FY 2012 wage index. However, since the issuance of the proposed rule, we have learned of four additional hospitals that have converted to CAH status between February 16, 2010, and February 15, 2011. We have excluded the wage data of these four hospitals as well. After removing hospitals with aberrant data and hospitals that converted to CAH status, the FY 2012 final wage index is calculated based on 3,489 hospitals.

In the FY 2008 final rule with comment period (72 FR 47317) and the FY 2009 IPPS final rule (73 FR 48582), we discussed our policy for allocating a multicampus hospital's wages and hours data, by full-time equivalent (FTE) staff, among the different labor market areas where its campuses are located. During the FY 2011 wage index desk review process, we requested fiscal intermediaries/MACs to contact multicampus hospitals that had campuses in different labor market areas to collect the data for the allocation. The FY 2011 wage index included separate wage data for campuses of three multicampus hospitals.

For FY 2012, as we discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50168), and as we proposed, we are no longer allowing hospitals to use discharge data for the allocation of a multicampus hospital's wage data among the different labor market areas where its campuses are located. The Medicare cost report was updated in May 2008 to provide for the reporting of FTE data by campus for multicampus hospitals (Form CMS-2552-96, Worksheet S-2, lines 61 and 62). The data from cost reporting periods that begin in FY 2008 are now available for calculating the wage index for FY 2012. Therefore, a multicampus hospital will not have the option to use either FTE or discharge data for allocating wage data among its campuses by providing the information from the applicable cost reporting period to CMS through its fiscal intermediary/MAC. Table 2 for the FY 2012 wage index, which is listed in section VI. of the Addendum to this proposed rule and available via the Internet, includes separate wage data for campuses of three multicampus hospitals.

F. Method for Computing the FY 2012 Unadjusted Wage Index

1. Steps for Computation

The method used to compute the FY 2012 wage index without an occupational mix adjustment follows:

Step 1—As noted above, we based the proposed FY 2012 wage index on wage data reported on the FY 2008 Medicare cost reports. We gathered data from each of the non-Federal, short-term, acute care hospitals for which data were reported on the Worksheet S-3, Parts II and III of the Medicare cost report for the hospital's cost reporting period beginning on or after October 1, 2007, and before October 1, 2008. In addition, we included data from some hospitals that had cost reporting periods beginning before October 2007 and reported a cost reporting period covering all of FY 2008. These data are included because no other data from these hospitals would be available for the cost reporting period described above, and because particular labor market areas might be affected due to the omission of these hospitals. However, we generally describe these wage data as FY 2008 data. We note that, if a hospital had more than one cost reporting period beginning during FY 2008 (for example, a hospital had two short cost reporting periods beginning on or after October 1, 2007, and before October 1, 2008), we included wage data from only one of the cost reporting periods, the longer, in the wage index calculation. If there was more than one cost reporting period and the periods were equal in length, we included the wage data from the later period in the wage index calculation.

Step 2—Salaries—The method used to compute a hospital's average hourly wage excludes certain costs that are not paid under the IPPS. (We note that, beginning with FY 2008 (72 FR 47315),we include Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services in the wage index. However, we note that the wages and hours on these lines are not incorporated into Line 101, Column 1 of Worksheet A, which, through the electronic cost reporting software, flows directly to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the wage index calculation for FY 2011 is to compute a “revised” Line 1, by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In calculating a hospital's average salaries plus wage-related costs, we subtract from Line 1 (total salaries) the GME and CRNA costs reported on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3, 5 and 5.01, home office salaries reported on Line 7, and exclude salaries reported on Lines 8 and 8.01 (that is, direct salaries attributable to SNF services, home health services, and other subprovider components not subject to the IPPS). We also subtract from Line 1 the salaries for which no hours were reported. To determine total salaries plus wage-related costs, we add to the net hospital salaries the costs of contract labor for direct patient care, certain top management, pharmacy, laboratory, and nonteaching physician Part A services (Lines 9 and 10), home office salaries and wage-related costs reported by the hospital on Lines 11 and 12, and nonexcluded area wage-related costs (Lines 13, 14, and 18).

We note that contract labor and home office salaries for which no corresponding hours are reported are not included. In addition, wage-related costs for nonteaching physician Part A employees (Line 18) are excluded if no corresponding salaries are reported for those employees on Line 4.

Step 3—Hours—With the exception of wage-related costs, for which there are no associated hours, we compute total hours using the same methods as described for salaries in Step 2.

Step 4—For each hospital reporting both total overhead salaries and total overhead hours greater than zero, we then allocate overhead costs to areas of the hospital excluded from the wage index calculation. First, we determine the ratio of excluded area hours (sum of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours (Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts of overhead salaries and hours to be allocated to excluded areas by multiplying the above ratio by the total overhead salaries and hours reported on Line 13 of Worksheet S-3, Part III. Next, we compute the amounts of overhead wage-related costs to be allocated to excluded areas using three steps: (1) we determine the ratio of overhead hours (Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line 1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01, 22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent wage index calculations, we are excluding the sum of lines 22.01, 26.01, and 27.01 from the determination of the ratio of overhead hours to revised hours because hospitals typically do not provide fringe benefits (wage-related costs) to contract personnel. Therefore, it is not necessary for the wage index calculation to exclude overhead wage-related costs for contract personnel. Further, if a hospital does contribute to wage-related costs for contracted personnel, the instructions for Lines 22.01, 26.01, and 27.01 require that associated wage-related costs be combined with wages on the respective contract labor lines.); (2) we compute overhead wage-related costs by multiplying the overhead hours ratio by wage-related costs reported on Part II, Lines 13, 14, and 18; and (3) we multiply the computed overhead wage-related costs by the above excluded area hours ratio. Finally, we subtract the computed overhead salaries, wage-related costs, and hours associated with excluded areas from the total salaries (plus wage-related costs) and hours derived in Steps 2 and 3.

Step 5—For each hospital, we adjust the total salaries plus wage-related costs to a common period to determine total adjusted salaries plus wage-related costs. To make the wage adjustment, we estimate the percentage change in the employment cost index (ECI) for compensation for each 30-day increment from October 14, 2005, through April 15, 2007, for private industry hospital workers from the BLS'Compensation and Working Conditions. We use the ECI because it reflects the price increase associated with total compensation (salaries plus fringes) rather than just the increase in salaries. In addition, the ECI includes managers as well as other hospital workers. This methodology to compute the monthly update factors uses actual quarterly ECI data and assures that the update factors match the actual quarterly and annual percent changes. We also note that, since April 2006 with the publication of March 2006 data, the BLS' ECI uses a different classification system, the North American Industrial Classification System (NAICS), instead of the Standard Industrial Codes (SICs), which no longer exist. We have consistently used the ECI as the data source for our wages and salaries and other price proxies in the IPPS market basket, and we are not making any changes to the usage for FY 2012. The factors used to adjust the hospital's data were based on the midpoint of the cost reporting period, as indicated below.

Midpoint of Cost Reporting Period
AfterBeforeAdjustment factor
10/14/200711/15/20071.03990
11/14/200712/15/20071.03699
12/14/200701/15/20081.03402
01/14/200802/15/20081.03113
02/14/200803/15/20081.02831
03/14/200804/15/20081.02555
04/14/200805/15/20081.02286
05/14/200806/15/20081.02024
06/14/200807/15/20081.01766
07/14/200808/15/20081.01511
08/14/200809/15/20081.01258
09/14/200810/15/20081.01015
10/14/200811/15/20081.00787
11/14/200812/15/20081.00575
12/14/200801/15/20091.00375
01/14/200902/15/20091.00183
02/14/200903/15/20091.00000
03/14/200904/15/20090.99820

For example, the midpoint of a cost reporting period beginning January 1, 2008, and ending December 31, 2008, is June 30, 2008. An adjustment factor of 1.01766 would be applied to the wages of a hospital with such a cost reporting period. In addition, for the data for any cost reporting period that began in FY 2008 and covered a period of less than 360 days or more than 370 days, we annualize the data to reflect a 1-year cost report. Dividing the data by the number of days in the cost report and then multiplying the results by 365 accomplishes annualization.

Step 6—Each hospital is assigned to its appropriate urban or rural labor market area before any reclassifications under section 1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the Act. Within each urban or rural labor market area, we add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in that area to determine the total adjusted salaries plus wage-related costs for the labor market area.

Step 7—We divide the total adjusted salaries plus wage-related costs obtained under both methods in Step 6 by the sum of the corresponding total hours (from Step 4) for all hospitals in each labor market area to determine an average hourly wage for the area.

Step 8—We add the total adjusted salaries plus wage-related costs obtained in Step 5 for all hospitals in the Nation and then divide the sum by the national sum of total hours from Step 4 to arrive at a national average hourly wage. Using the data as described above, the national average hourly wage (unadjusted for occupational mix) is $36.2784.

Step 9—For each urban or rural labor market area, we calculate the hospital wage index value, unadjusted for occupational mix, by dividing the area average hourly wage obtained in Step 7 by the national average hourly wage computed in Step 8.

Step 10—Following the process set forth above, we develop a separate Puerto Rico-specific wage index for purposes of adjusting the Puerto Rico standardized amounts. (The national Puerto Rico standardized amount is adjusted by a wage index calculated for all Puerto Rico labor market areas based on the national average hourly wage as described above.) We add the total adjusted salaries plus wage-related costs (as calculated in Step 5) for all hospitals in Puerto Rico and divide the sum by the total hours for Puerto Rico (as calculated in Step 4) to arrive at an overall average hourly wage (unadjusted for occupational mix) of $15.3899 for Puerto Rico. For each labor market area in Puerto Rico, we calculate the Puerto Rico-specific wage index value by dividing the area average hourly wage (as calculated in Step 7) by the overall Puerto Rico average hourly wage.

Step 11—Section 4410 of Public Law 105-33 provides that, for discharges on or after October 1, 1997, the area wage index applicable to any hospital that is located in an urban area of a State may not be less than the area wage index applicable to hospitals located in rural areas in that State. The areas affected by this provision are identified in Table 4D which is listed in section VI. of the Addendum to this final rule and available via the Internet.

In the FY 2012 IPPS/LTCH PPS proposed rule, we made no proposals for changing our policies pertaining to the rural floor provision. However, we received several public comments, particularly regarding the FY 2012 rural floor wage index for Massachusetts, which was discussed in section VI.B.7. of Appendix A (76 FR 26059 and 26060) as part of the regulatory impact analysis for the proposed rule.

Comment: Some commenters stated that CMS had correctly calculated the Massachusetts rural floor wage index in accordance with existing law and regulations. One commenter agreed with the basic policy and premise of the rural floor limit but opined that all hospitals in Massachusetts receiving a significant increase in Medicare revenues as a result of a small hospital converting to an acute care provider is inconsistent with the intent and spirit of the law. The commenter suggested that CMS revisit its regulatory and policy options as it relates to section 4410 of the BBA.

The MedPAC stated that the Massachusetts rural floor situation is suggestive of why a new wage index system is needed, adding that the current system is not equitable because extra payments made to hospitals receiving such exceptions are budget neutral; therefore, all hospitals must absorb the cost. A national hospital association requested that CMS provide a table indicating the state-by-state impact of the rural floor provision for providers in each state, including a schedule of what the area wage indexes would be if the rural floor was not applied. The commenter also suggested that CMS publish this information annually.

Response: Beginning with this FY 2012 IPPS-LTCH final rule, we are including in the impact section of Appendix A of both the proposed and final rules a table indicating State level impacts of the rural floor provision. For FY 2012, this table includes the impacts of both the rural and imputed floors, as discussed under section III.F.2. of this preamble. In addition, we are revising Table 4D of the Addendum, which specifies the wage index for States or urban areas receiving the frontier, rural, or imputed floor, to include a column indicating the pre-floor area wage index. We will consider the commenters' other suggestions as part of our development of the Report to Congress on reforming the wage index, required by section 3137(b) of the Affordable Care Act and due to the Congress by December 31, 2011.

2. Imputed Floor Policy

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25878 and 25879), we discussed the expiration of the imputed floor policy. (We refer readers to FY 2005 IPPS final rule (69 FR 49109 through 49111) for an explanation of CMS' adoption of the “imputed” floor as a temporary 3-year regulatory measure to address concerns that hospitals in all-urban States were disadvantaged by the absence of rural hospitals to set a wage index floor in those States; the FY 2008 IPPS final rule with comment period (72 FR 47321) for a discussion of the extension of the imputed floor through FY 2008; and the FY 2009 IPPS final rule (73 FR 48570 through 48574 and 48584) for a discussion of the extension of the imputed floor for an additional 3 years, through FY 2011, due to applying statewide budget neutrality for the rural and imputed floors.) As noted in the FY 2012 IPPS/LTCH PPS proposed rule and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160), section 3141 of the Affordable Care Act replaced the statewide budget neutrality policy and required that budget neutrality for the rural and imputed floor be applied “through a uniform, national adjustment to the area wage index” instead of within each State beginning in FY 2011. However, the Affordable Care Act did not include a provision to extend the imputed floor or to make the imputed floor permanent.

As discussed in the FY 2008 IPPS proposed rule and final rule with comment period (72 FR 24786 and 72 FR 47322, respectively), the application of the national budget neutrality requirement for the rural and imputed floors requires a transfer of payments from hospitals in States with rural hospitals but where the rural floor is not applied to hospitals in States where the rural or imputed floor is applied. In the final FY 2012 wage index, the rural floor will apply to 297 hospitals in 29 States. Continuing the imputed floor policy into FY 2012 results in an imputed floor applied for 39 hospitals in New Jersey. In the FY 2012 IPPS/LTCH PPS proposed rule, we did not propose to extend the imputed floor but sought public comments regarding the expiration of the imputed floor.

Comment: Although a few commenters, including a national hospital association, supported CMS making no proposal to extend the imputed floor policy and agreed that this type of floor benefits only one State at the expense of all others, applies even though there are no rural areas in the State, and should apply only when required by statute, several commenters requested that CMS extend the current imputed floor policy. These commenters, including a national hospital association and a few State hospital associations, noted that, absent any new wage index policies that address the original need for the imputed floor, an imputed floor should be continued. Some of the commenters suggested that CMS make the imputed floor policy permanent. They asserted that hospitals in all-urban States suffer financial and competitive disadvantages, and they believed that CMS' permanent adoption of an imputed floor policy would remedy these disadvantages. The commenters stated that other States could potentially benefit from the imputed floor in the future should their circumstanceschange, and the fact that only one State currently benefits from the policy should not serve as CMS' rationale for eliminating it. One commenter also suggested that if the imputed floor is to expire, it should be phased out over several years to avoid dramatic cost cutting and elimination of vital services.

Response: In response to commenters' concerns regarding the proposed September 30, 2011 expiration of the imputed floor, we have decided to extend the policy for 2 additional years, for FYs 2012 and 2013 (that is, through September 30, 2013), after which time we will reevaluate the policy. We believe that continuing the current imputed floor policy through FY 2013 is a reasonable accommodation for the hospitals that have benefited from the imputed floor. Also, a 2-year extension period coincides with the requirement under section 3137(c) of Public Law 111-148 that CMS must apply the reclassification average hourly wage comparison standards that were in place during FY 2008 “until the first fiscal year beginning on or after the date that is one year after the Secretary of Health and Human Services submits a report to Congress on reforming the wage index under 3137(b) of Public Law 111-148.” (We refer readers to a complete discussion of this requirement in the FY 2011 IPPS/LTCH PPS supplemental proposed rule (75 FR 30919).) The report to Congress is due by December 31, 2011. Therefore, because the first fiscal year beginning after December 31, 2012 (a year after the report to Congress is due) starts on October 1, 2013, CMS cannot make any changes to the reclassification average hourly wage comparison standards before FY 2014. Given our current study of the entire wage index system, including geographic reclassification and the rural and imputed floor policies, we believe it is reasonable to continue the current imputed floor policy through the same evaluation period specified under section 3137(c) of Public Law 111-148.

Therefore, in this FY 2012 final rule, we are providing an extension of the current imputed floor policy, including a national budget neutrality adjustment, through FY 2013 (that is, through September 30, 2013). Accordingly, we also have revised the Medicare regulations in § 412.64(h)(4) to reflect this extension. We note that, although the extension of the imputed floor policy in this final rule is partially based on the due date of the report to Congress under section 3137(b) of Public Law 111-148 and the time period for which CMS is prohibited from making any changes to the FY 2008 reclassification average hourly wage comparison standards, under 3137(c) of Public Law 111-148, this extension of the imputed floor policy is effective through the end of FY 2013, regardless of any changes that may be subsequently made pursuant to these statutory provisions.

Thus, the final FY 2012 wage index and impact tables associated with this final rule and published on CMS' Web site include the application of the imputed floor policy and a national budget neutrality adjustment for the imputed floor. As mentioned above, 39 providers in New Jersey will receive an increase in their FY 2012 wage index due to the imputed floor policy.

3. FY 2012 Puerto Rico Wage Index

We note that, for the FY 2012 wage index, there is one new hospital in rural Puerto Rico when previously there were none. However, this hospital has no cost reporting period beginning during FY 2008 and, therefore, has no wage data for inclusion in the FY 2012 wage index calculation for rural Puerto Rico. We discussed in the FY 2005 IPPS final rule that the imputed floor policy in § 412.64(h)(4) of the regulations does not apply to Puerto Rico hospitals (69 FR 49111). (We note that in this discussion in the FY 2012 IPPS/LTCH PPS proposed rule, we incorrectly stated that the imputed floor policy would apply to Puerto Rico. We have revised the discussion in the preamble of this final rule to accurately reflect our policies.) However, we adopted the policy in the FY 2008 IPPS final rule with comment period (72 FR 47323) that if there are no hospitals' cost report wage data available to calculate a State's rural floor, and the imputed floor policy has expired (or, in the case of Puerto Rico, the imputed floor is not applicable), “we will use the unweighted average of the wage indices from all CBSAs (urban areas) that are contiguous to the rural counties of the State to compute the State's rural floor. (We define contiguous as sharing a border.)” Except for Fajardo, Puerto Rico (CBSA 21940), all other Puerto Rico urban areas are contiguous to a rural area. Therefore, based on our existing policy, the FY 2012 rural Puerto Rico wage index is calculated based on the average of the FY 2012 wage indices for the following urban areas: Aguadilla-Isabela-San Sebastián, PR (CBSA 10380); Guayama, PR (CBSA 25020); Mayagüez, PR (CBSA 32420); Ponce, PR (CBSA 38660), San Germán-Cabo Rojo, PR (CBSA 41900), San Juan-Caguas-Guaynabo, PR (CBSA 41980), and Yauco, PR (CBSA 49500).

G. Analysis and Implementation of the Occupational Mix Adjustment and the FY 2012 Occupational Mix Adjusted Wage Index

As discussed in section III.C. of this preamble, for FY 2012, we apply the occupational mix adjustment to 100 percent of the FY 2012 wage index. We calculated the occupational mix adjustment using data from the 2007-2008 occupational mix survey data, using the methodology described in section III.C.3. of this preamble.

Using the occupational mix survey data and applying the occupational mix adjustment to 100 percent of the FY 2012 wage index results in a national average hourly wage of $36.2481 and a Puerto-Rico specific average hourly wage of $15.4142. After excluding data of hospitals that either submitted aberrant data that failed critical edits, or that do not have FY 2008 Worksheet S-3 cost report data for use in calculating the FY 2012 wage index, we calculated the FY 2012 wage index using the occupational mix survey data from 3,168 hospitals. Using the Worksheet S-3 cost report data of 3,489 hospitals and occupational mix survey data from 3,168 hospitals represents a 90.8 percent survey response rate. The FY 2012 national average hourly wages for each occupational mix nursing subcategory as calculated in Step 2 of the occupational mix calculation are as follows:

Occupational mix nursing subcategoryAverage hourly wage
National RN$36.075785685
National LPN and Surgical Technician20.860811964
National Nurse Aide, Orderly, and Attendant14.619464256
National Medical Assistant16.443954736
National Nurse Category 30.463606009

The national average hourly wage for the entire nurse category as computed in Step 5 of the occupational mix calculation is $30.463606009. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of greater than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of less than 1.0. Hospitals with a nurse category average hourly wage (as calculated in Step 4) of less than the national nurse category average hourly wage receive an occupational mix adjustment factor (as calculated in Step 6) of greater than 1.0.

Based on the 2007-2008 occupational mix survey data, we determined (in Step 7 of the occupational mix calculation) that the national percentage of hospitalemployees in the nurse category is 44.31 percent, and the national percentage of hospital employees in the all other occupations category is 55.69 percent. At the CBSA level, the percentage of hospital employees in the nurse category ranged from a low of 29.08 percent in one CBSA, to a high of 70.76 percent in another CBSA.

We compared the FY 2012 occupational mix adjusted wage indices for each CBSA to the unadjusted wage indices for each CBSA. As a result of applying the occupational mix adjustment to the wage data, the wage index values for 209 (53.5 percent) urban areas and 32 (66.7 percent) rural areas would increase. One hundred nine (27.9 percent) urban areas would increase by 1 percent or more, and 5 (1.3 percent) urban areas would increase by 5 percent or more. Seventeen (35.4 percent) rural areas would increase by 1 percent or more, and no rural areas would increase by 5 percent or more. However, the wage index values for 182 (46.5 percent) urban areas and 16 (33.3 percent) rural areas would decrease. Eighty-nine (22.8 percent) urban areas would decrease by 1 percent or more, and no urban area would decrease by 5 percent or more. Seven (14.6 percent) rural areas would decrease by 1 percent or more, and no rural areas would decrease by 5 percent or more. The largest positive impacts are 7.83 percent for an urban area and 2.91 percent for a rural area. The largest negative impacts are 4.45 percent for an urban area and 2.78 percent for a rural area. No urban or rural areas are unaffected. These results indicate that a larger percentage of rural areas (66.7 percent) would benefit from the occupational mix adjustment than do urban areas (53.5 percent). While these results are more positive overall for rural areas than under the previous occupational mix adjustment that used survey data from 2006, approximately one-third (33.3 percent) of rural CBSAs would still experience a decrease in their wage indices as a result of the occupational mix adjustment.

The wage index values for FY 2012 (except those for hospitals receiving wage index adjustments under section 1886(d)(13) of the Act) included in Tables 4A, 4B, 4C, and 4F, which are listed in section VI. of the Addendum to this final rule and available via the Internet, include the occupational mix adjustment.

Tables 3A and 3B, which are listed in section VI. of the Addendum to this final rule and available via the Internet, list the 3-year average hourly wage for each labor market area before the redesignation or reclassification of hospitals based on FYs 2010, 2011, and 2012 cost reporting periods. Table 3A lists these data for urban areas, and Table 3B lists these data for rural areas. In addition, Table 2, which is listed in section VI. of the Addendum to this final rule and available via the Internet, includes the adjusted average hourly wage for each hospital from the FY 2006 and FY 2007 cost reporting periods, as well as the FY 2008 period used to calculate the FY 2012 wage index. The 3-year averages are calculated by dividing the sum of the dollars (adjusted to a common reporting period using the method described previously) across all 3 years, by the sum of the hours. If a hospital is missing data for any of the previous years, its average hourly wage for the 3-year period is calculated based on the data available during that period. The average hourly wages in Tables 2, 3A, and 3B, which are listed in section VI. of the Addendum to this final rule and available via the Internet, include the occupational mix adjustment. The wage index values in Tables 4A, 4B, 4C, and 4D also include the national rural and imputed floor budget neutrality adjustment.

H. Revisions to the Wage Index Based on Hospital Redesignations and Reclassifications

1. General

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. Hospitals must apply to the MGCRB to reclassify 13 months prior to the start of the fiscal year for which reclassification is sought (generally by September 1). Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area. The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year (beginning October 1). The regulations applicable to reclassifications by the MGCRB are located in 42 CFR 412.230 through 412.280. (We refer readers to a discussion of the proximity requirements in the FY 2002 IPPS final rule (66 FR 39874 and 39875).)

Section 1886(d)(10)(D)(v) of the Act provides that, beginning with FY 2001, a MGCRB decision on a hospital reclassification for purposes of the wage index is effective for 3 fiscal years, unless the hospital elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of the Act provides that the MGCRB must use average hourly wage data from the 3 most recently published hospital wage surveys in evaluating a hospital's reclassification application for FY 2003 and any succeeding fiscal year.

Section 304(b) of Public Law 106-554 provides that the Secretary must establish a mechanism under which a statewide entity may apply to have all of the geographic areas in the State treated as a single geographic area for purposes of computing and applying a single wage index, for reclassifications beginning in FY 2003. The implementing regulations for this provision are located at 42 CFR 412.235.

Section 1886(d)(8)(B) of the Act requires the Secretary to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the labor market area to which the greatest number of workers in the county commute, if the rural county would otherwise be considered part of an urban area under the standards for designating MSAs and if the commuting rates used in determining outlying counties were determined on the basis of the aggregate number of resident workers who commute to (and, if applicable under the standards, from) the central county or counties of all contiguous MSAs. In light of the CBSA definitions and the Census 2000 data that we implemented for FY 2005 (69 FR 49027), we undertook to identify those counties meeting these criteria. Eligible counties are discussed and identified under section III.H.5. of this preamble.

2. Effects of Reclassification/Redesignation

Section 1886(d)(8)(C) of the Act provides that the application of the wage index to redesignated hospitals is dependent on the hypothetical impact that the wage data from these hospitals would have on the wage index value for the area to which they have been redesignated. These requirements for determining the wage index values for redesignated hospitals are applicable both to the hospitals deemed urban under section 1886(d)(8)(B) of the Act and hospitals that were reclassified as a result of the MGCRB decisions under section 1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C) of the Act, the wage index values were determined by considering the following:

  • If including the wage data for the redesignated hospitals would reduce the wage index value for the area to which the hospitals are redesignated by 1 percentage point or less, the area wage index value determined exclusive of thewage data for the redesignated hospitals applies to the redesignated hospitals.
  • If including the wage data for the redesignated hospitals reduces the wage index value for the area to which the hospitals are redesignated by more than 1 percentage point, the area wage index determined inclusive of the wage data for the redesignated hospitals (the combined wage index value) applies to the redesignated hospitals.
  • If including the wage data for the redesignated hospitals increases the wage index value for the urban area to which the hospitals are redesignated, both the area and the redesignated hospitals receive the combined wage index value. Otherwise, the hospitals located in the urban area receive a wage index excluding the wage data of hospitals redesignated into the area.
  • Rural areas whose wage index values would be reduced by excluding the wage data for hospitals that have been redesignated to another area continue to have their wage index values calculated as if no redesignation had occurred (otherwise, redesignated rural hospitals are excluded from the calculation of the rural wage index). The wage index value for a redesignated rural hospital cannot be reduced below the wage index value for the rural areas of the State in which the hospital is located.

CMS also has adopted the following policies:

  • The wage data for a reclassified urban hospital is included in both the wage index calculation of the urban area to which the hospital is reclassified (subject to the rules described above) and the wage index calculation of the urban area where the hospital is physically located.
  • In cases where hospitals have reclassified to rural areas, such as urban hospitals reclassifying to rural areas under 42 CFR 412.103, the hospital's wage data are: (a) included in the rural wage index calculation, unless doing so would reduce the rural wage index; and (b) included in the urban area where the hospital is physically located. The effect of this policy, in combination with the statutory requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural areas may receive a wage index based upon the highest of: (1) Wage data from hospitals geographically located in the rural area; (2) wage data from hospitals geographically located in the rural area, but excluding all data associated with hospitals reclassifying out of the rural area under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3) wage data associated with hospitals geographically located in the area plus all hospitals reclassified into the rural area.

In addition, in accordance with the statutory language referring to “hospitals” in the plural under sections 1886(d)(8)(C)(i) and 1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider reclassified hospitals as a group when deciding whether to include or exclude them from both urban and rural wage index calculations.

3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements and Approvals

Under section 1886(d)(10) of the Act, the MGCRB considers applications by hospitals for geographic reclassification for purposes of payment under the IPPS. The specific procedures and rules that apply to the geographic reclassification process are outlined in 42 CFR 412.230 through 412.280.

At the time this final rule was constructed, the MGCRB had completed its review of FY 2012 reclassification requests. Based on such reviews, there were 280 hospitals approved for wage index reclassifications by the MGCRB for FY 2012. Because MGCRB wage index reclassifications are effective for 3 years, for FY 2012, hospitals reclassified during FY 2010 or FY 2011 are eligible to continue to be reclassified to a particular labor market area based on such prior reclassifications. There were 283 hospitals approved for wage index reclassifications in FY 2010 and 294 hospitals approved for wage index reclassifications in FY 2011. Of all of the hospitals approved for reclassification for FY 2010, FY 2011, and FY 2012, based upon the review at the time of this final rule, 659 hospitals are in a reclassification status for FY 2012.

Under 42 CFR 412.273, hospitals that have been reclassified by the MGCRB are permitted to withdraw their applications within 45 days of the publication of a proposed rule. CMS became aware that an error was made in the calculation of the proposed wage index out-migration adjustment in Table 4J of the FY 2012 IPPS/LTCH PPS proposed rule. This error in the calculation affected 104 providers that became eligible to receive the out-migration adjustment. We published a correction notice in theFederal Registeron July 13, 2011 (76 FR 41178), which had a display date of July 11, 2011, announcing the corrections to the tables. Additionally, we issued a letter to hospitals on July 1, 2011, through their fiscal intermediaries/MACs advising that we extended the 45-day deadline and allowed hospitals a 7-day period from the date of display of the correction notice (that is, by July 18, 2011) for hospitals that wished to request a revision to an already submitted withdrawal/termination request under 42 CFR 412.73, or that wished to request a withdrawal of a reclassification or termination of an existing 3-year section 1886(d)(10) reclassification that would be effective in FY 2012. Hospitals also may cancel prior reclassification withdrawals or terminations in certain circumstances. For further information about withdrawing, terminating, or canceling a previous withdrawal or termination of a 3-year reclassification for wage index purposes, we refer the reader to 42 CFR 412.273, as well as the FY 2002 IPPS final rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 50065). Additional discussion on withdrawals and terminations, and clarifications regarding reinstating reclassifications and “fallback” reclassifications, were included in the FY 2008 IPPS final rule (72 FR 47333).

Changes to the wage index that result from withdrawals of requests for reclassification, terminations, wage index corrections, appeals, and the Administrator's review process for FY 2012 are incorporated into the wage index values published in the FY 2012 IPPS/LTCH PPS final rule. These changes affect not only the wage index value for specific geographic areas, but also the wage index value redesignated/reclassified hospitals receive; that is, whether they receive the wage index that includes the data for both the hospitals already in the area and the redesignated/reclassified hospitals. Further, the wage index value for the area from which the hospitals are redesignated/reclassified may be affected.

b. Applications for Reclassifications for FY 2013

Applications for FY 2013 reclassifications are due to the MGCRB by September 1, 2011. We note that this is also the deadline for canceling a previous wage index reclassification withdrawal or termination under 42 CFR 412.273(d). Applications and other information about MGCRB reclassifications may be obtained, beginning in mid-July 2011, via the CMS Internet Web site at: http://cms.hhs.gov/MGCRB/02_instructions_and_applications.asp, or by calling the MGCRB at (410) 786-1174. The mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, Baltimore, MD 21244-2670.

4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act

Section 1886(d)(8)(B) of the Act requires us to treat a hospital located in a rural county adjacent to one or more urban areas as being located in the MSA if certain criteria are met. Effective beginning FY 2005, we use OMB's 2000 CBSA standards and the Census 2000 data to identify counties in which hospitals qualify under section 1886(d)(8)(B) of the Act to receive the wage index of the urban area. Hospitals located in these counties have been known as “Lugar” hospitals and the counties themselves are often referred to as “Lugar” counties. We provide the FY 2011 chart below with the listing of the rural counties containing the hospitals designated as urban under section 1886(d)(8)(B) of the Act. For discharges occurring on or after October 1, 2011, hospitals located in the rural county in the first column of this chart will be redesignated for purposes of using the wage index of the urban area listed in the second column.

Rural Counties Containing Hospitals Redesignated as Urban Under Section 1886(d)(8)(B) of the Act
Rural countyCBSA
Cherokee, ALRome, GA.
Macon, ALAuburn-Opelika, AL.
Talladega, ALAnniston-Oxford, AL.
Hot Springs, ARHot Springs, AR.
Windham, CTHartford-West Hartford-East Hartford, CT.
Bradford, FLGainesville, FL.
Hendry, FLWest Palm Beach-Boca Raton-Boynton, FL.
Levy, FLGainesville, FL.
Walton, FLFort Walton Beach-Crestview-Destin, FL.
Banks, GAGainesville, GA.
Chattooga, GAChattanooga, TN-GA.
Jackson, GA.Atlanta-Sandy Springs-Marietta, GA.
Lumpkin, GA.Atlanta-Sandy Springs-Marietta, GA.
Morgan, GAAtlanta-Sandy Springs-Marietta, GA.
Peach, GAMacon, GA.
Polk, GAAtlanta-Sandy Springs-Marietta, GA.
Talbot, GAColumbus, GA-AL.
Bingham, IDIdaho Falls, ID.
Christian, ILSpringfield, IL.
DeWitt, ILBloomington-Normal, IL.
Iroquois, ILKankakee-Bradley, IL.
Logan, ILSpringfield, IL.
Mason, ILPeoria, IL.
Ogle, ILRockford, IL.
Clinton, INLafayette, IN.
Henry, INIndianapolis-Carmel, IN.
Spencer, INEvansville, IN-KY.
Starke, INGary, IN.
Warren, INLafayette, IN.
Boone, IAAmes, IA.
Buchanan, IAWaterloo-Cedar Falls, IA.
Cedar, IAIowa City, IA.
Allen, KYBowling Green, KY.
Assumption Parish, LABaton Rouge, LA.
St. James Parish, LABaton Rouge, LA.
Allegan, MIHolland-Grand Haven, MI.
Montcalm, MIGrand Rapids-Wyoming, MI.
Oceana, MIMuskegon-Norton Shores, MI.
Shiawassee, MILansing-East Lansing, MI.
Tuscola, MISaginaw-Saginaw Township North, MI.
Fillmore, MNRochester, MN.
Dade, MOSpringfield, MO.
Pearl River, MSGulfport-Biloxi, MS.
Caswell, NCBurlington, NC.
Davidson, NCGreensboro-High Point, NC.
Granville, NCDurham, NC.
Harnett, NCRaleigh-Cary, NC.
Lincoln, NCCharlotte-Gastonia-Concord, NC-SC.
Polk, NCSpartanburg, SC.
Los Alamos, NMSanta Fe, NM.
Lyon, NVCarson City, NV.
Cayuga, NYSyracuse, NY.
Columbia, NYAlbany-Schenectady-Troy, NY.
Genesee, NYRochester, NY.
Greene, NYAlbany-Schenectady-Troy, NY.
Schuyler, NYIthaca, NY.
Sullivan, NYPoughkeepsie-Newburgh-Middletown, NY.
Wyoming, NYBuffalo-Niagara Falls, NY.
Ashtabula, OHCleveland-Elyria-Mentor, OH.
Champaign, OHSpringfield, OH.
Columbiana, OHYoungstown-Warren-Boardman, OH-PA.
Cotton, OKLawton, OK.
Linn, ORCorvallis, OR.
Adams, PAYork-Hanover, PA.
Clinton, PAWilliamsport, PA.
Greene, PAPittsburgh, PA.
Monroe, PAAllentown-Bethlehem-Easton, PA-NJ.
Schuylkill, PAReading, PA.
Susquehanna, PABinghamton, NY.
Clarendon, SCSumter, SC.
Lee, SCSumter, SC.
Oconee, SCGreenville, SC.
Union, SCSpartanburg, SC.
Meigs, TNCleveland, TN.
Bosque, TXWaco, TX.
Falls, TXWaco, TX.
Fannin, TXDallas-Plano-Irving, TX.
Grimes, TXCollege Station-Bryan, TX.
Harrison, TXLongview, TX.
Henderson, TXDallas-Plano-Irving, TX.
Milam, TXAustin-Round Rock, TX.
Van Zandt, TXDallas-Plano-Irving, TX.
Willacy, TXBrownsville-Harlingen, TX.
Buckingham, VACharlottesville, VA.
Floyd, VABlacksburg-Christiansburg-Radford, VA.
Middlesex, VAVirginia Beach-Norfolk-Newport News, VA.
Page, VAHarrisonburg, VA.
Shenandoah, VAWinchester, VA-WV.
Island, WASeattle-Bellevue-Everett, WA.
Mason, WAOlympia, WA.
Wahkiakum, WALongview, WA.
Jackson, WVCharleston, WV.
Roane, WVCharleston, WV.
Green, WIMadison, WI.
Green Lake, WIFond du Lac, WI.
Jefferson, WIMilwaukee-Waukesha-West Allis, WI.
Walworth, WIMilwaukee-Waukesha-West Allis, WI.

As in the past, hospitals redesignated under section 1886(d)(8)(B) of the Act are also eligible to be reclassified to a different area by the MGCRB. Affected hospitals were permitted to compare the reclassified wage index for the labor market area in Table 4C (which was listed in section VI. of the Addendum to the proposed rule and available via the Internet) into which they would be reclassified by the MGCRB to the wage index for the area to which they are redesignated under section 1886(d)(8)(B) of the Act. Hospitals could have withdrawn from an MGCRB reclassification within 45 days of the publication of the FY 2012 proposed rule. As discussed in section III.H.3.a. of this preamble, we published a correction notice in theFederal Registeron July 13, 2011 (76 FR 41178), which had a display date of July 11, 2011, announcing corrections to the FY 2012 proposed out-migration adjustment in Table 4J. Additionally, we issued a letter to hospitals on July 1, 2011, through their fiscal intermediaries/MACs advising that we extended the 45-day deadline and allowed hospitals a 7-day period from the date of display of the correction notice (that is, by July 18, 2011) for hospitals redesignated under section 1886(d)(8)(B) of the Act that also were eligible for an out-migration adjustment to notify CMS that they wished to receive the out-migration adjustment instead of their redesignation under section 1886(d)(8)(B) of the Act. Section 1886(d)(8)(B) hospitals that had already notified CMS that they wished to receive the out-migration adjustment instead of the section 1886(d)(8)(B) redesignation could withdraw such notifications.

5. Reclassifications Under Section 1886(d)(8)(B) of the Act

As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar hospitals are treated like reclassified hospitals for purposes of determining their applicable wage index and receive the reclassified wage index for the urban area to which they have been redesignated. Because Lugar hospitals are treated like reclassified hospitals, when they are seeking reclassification by the MGCRB, they are subject to the rural reclassification rules set forth at 42 CFR 412.230. The procedural rules set forth at § 412.230 list the criteria that a hospital must meet in order to reclassify as a rural hospital. Lugar hospitals are subject to the proximity criteria and payment thresholds that apply to rural hospitals. Specifically, the hospital must be no more than 35 miles from the area to which it seeks reclassification (§ 412.230(b)(1)); and the hospital must show that its average hourly wage is at least 106 percent of the average hourly wage of all other hospitals in the area in which the hospital is located (§ 412.230(d)(1)(iii)(C)). In accordance with the requirements of section 3137(c) of the Affordable Care Act, beginning with reclassifications for the FY 2011wage index, a Lugar hospital must also demonstrate that its average hourly wage is equal to at least 82 percent of the average hourly wage of hospitals in the area to which it seeks redesignation (§ 412.230(d)(1)(iv)(C)).

Hospitals not located in a Lugar county seeking reclassification to the urban area where the Lugar hospitals have been redesignated are not permitted to measure to the Lugar county to demonstrate proximity (no more than 15 miles for an urban hospital, and no more than 35 miles for a rural hospital or the closest urban or rural area for RRCs or SCHs) in order to be reclassified to such urban area. These hospitals must measure to the urban area exclusive of the Lugar County to meet the proximity or nearest urban or rural area requirement. We treat New England deemed counties in a manner consistent with how we treat Lugar counties. (We refer readers to FY 2008 IPPS final rule with comment period (72 FR 47337) for a discussion of this policy.)

6. Reclassifications Under Section 508 of Public Law 108-173

Section 508 of Public Law 108-173 allowed certain qualifying hospitals to receive wage index reclassifications and assignments that they otherwise would not have been eligible to receive under the law. Although section 508 originally was scheduled to expire after a 3-year period, Congress extended the provision several times, as well as certain special exceptions that would have otherwise expired. For a discussion of the original section 508 provision and its various extensions, we refer readers to the FY 2010 notice issued in theFederal Registeron June 2, 2010 (75 FR 31118). Prior to the enactment of the Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309) on December 15, 2010, the extension of the 508 provision was included in sections 3137(a) and 10317 of the Affordable Care Act (Pub. L. 111-148). Section 3137 of the Affordable Care Act extended, through FY 2010, section 508 reclassifications as well as certain special exceptions. The most recent extension of the provision was included in section 102 of the Medicare and Medicaid Extender Act, which extends, through FY 2011, section 508 reclassifications as well as certain special exceptions. The latest extension of these provisions expires on September 30, 2011, and will no longer be applicable effective with FY 2012.

7. Waiving Lugar Redesignation for the Out-Migration Adjustment

We have received several inquiries regarding the effect on a hospital's deemed urban status when a hospital waives its reclassification under section 1886(d)(8) of the Act in order to accept an out-migration adjustment to the wage index under section 1886(d)(13) of the Act. (We refer readers to a discussion of the out-migration adjustment under section III.I. of the preamble of this final rule.) In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25885 and 25886), we clarified that Lugar hospitals will be required to waive their Lugar urban status in its entirety in order to receive the out-migration adjustment. We stated our belief that this represents one permissible reading of the statute, given that section 1886(d)(13)(G) of the Act states that a hospital with an out-migration adjustment is not “eligible” for a reclassification under subsection (8). Therefore, beginning with FY 2012, we proposed that an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all purposes under the IPPS, including being considered rural for the DSH payment adjustment, effective for the fiscal year in which the hospital receives the out-migration adjustment. (We refer readers to a discussion of DSH payment adjustment under section IV.G. of this preamble.)

In addition, we proposed to make a minor procedural change that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment (through written notification to CMS within the requisite number of days from the publication of the proposed rule (4) ) to automatically waive its urban status for the 3-year period for which its out-migration adjustment is effective. That is, such a Lugar hospital would no longer be required during the second and third years of eligibility for the out-migration adjustment to advise us annually that it prefers to continue being treated as rural and receive the adjustment. We made this proposal in response to public comments we received on the FY 2011 IPPS/LTCH PPS proposed rule that discussed the burden of this annual request (74 FR 43840). Thus, under the proposed procedural change, a Lugar hospital that requests to waive its urban status in order to receive the rural wage index in addition to the out-migration adjustment would be deemed to have accepted the out-migration adjustment and agrees to be treated as rural for the duration of its 3-year eligibility period, unless prior to its second or third year of eligibility the hospital explicitly notifies CMS in writing, within the required period (generally 45 days from the publication of the proposed rule), that it instead elects to return to its deemed urban status and no longer wishes to accept the out-migration adjustment.

Comment: Commenters supported CMS' proposed policy clarification that an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has effectively waived its deemed urban status and, thus, is rural for all IPPS purposes. Some of the commenters stated that this policy provides the flexibility necessary to allow hospitals to revert to their true rural status if they wish. Commenters also supported the proposed minor procedural change that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment to automatically waive its urban status for the 3-year period for which its out-migration adjustment is effective. Some commenters asked CMS to clarify whether the procedural change will apply to letters already filed for the FY 2012 update, in which a request was made to waive Lugar redesignation and to instead receive the out-migration adjustment.

Response: Beginning with FY 2012, we are adopting as final the policy that an eligible hospital that waives its Lugar status in order to receive the out-migration adjustment has waived its deemed urban status and, thus, is rural for all IPPS purposes. In addition, we are adopting as final the procedural change that would allow a Lugar hospital that qualifies for and accepts the out-migration adjustment to automatically waive its urban status for the 3-year period for which the out-migration adjustment is effective. This clarified policy and procedural change will be effective beginning with the FY 2013 wage index. Therefore, hospitals that sent requests to waive Lugar status for the out-migration adjustment for FY 2012, and still have 2 or 3 years of eligibility available for the out-migration adjustment, must request again next year for the waiver to apply to the FY 2013 wage index. That request would be effective for the remaining years of its eligibility.

At the time hospitals made their decisions with respect to waiving Lugar status for the out-migration adjustment for FY 2012, the procedural changeallowing a 3-year waiver was not yet in effect. Therefore, those decisions were based on the existing policy in place for the proposed rule, which required annual waivers. As discussed in section III.H.4. of this preamble, counties remain eligible for a consistent out-migration adjustment for a period of 3 years. Each year, we revise the list of counties to (1) add new counties eligible for an adjustment for 3 years; (2) remove counties where 3 years have elapsed and the counties no longer qualify for an adjustment; or (3) revise the adjustment value for counties in cases where 3 years have elapsed and the counties, once again, qualify for an adjustment. Some hospitals may not know whether they are in the first, second, or third year of the out-migration adjustment; and therefore, whether they are able to waive deemed urban Lugar status for 1, 2, or 3 years. For these reasons, beginning with FY 2013, we intend to make available, shortly after we publish the proposed rule, a public use file which will list Lugar/out-migration hospitals (that is, hospitals that have Lugar status and are located in a county that qualifies for an out-migration adjustment), and which will identify whether the hospital is in its first, second, or third year of eligibility for the out-migration adjustment. We will update this file annually and release it to the public after each fiscal year's proposed rule.

Comment: Some commenters expressed concerns with respect to hospitals reclassified from urban to rural under section 1886(d)(8)(E) of the Act (§ 412.103 of the regulations). The commenters expressed concern that a hospital reclassified from urban to rural status under § 412.103 has to cancel this reclassification to return to Lugar status, so that it can then waive its Lugar status to become rural and retain a special rural status (such as SCH or MDH), and also receive the out-migration adjustment. However, a § 412.103 cancellation takes effect only at the beginning of the next cost reporting period, whereas waiving Lugar status is effective on October 1. The commenters indicated that this presents a problem for hospitals that do not have a September 30 cost reporting period end date. The commenters urged CMS to create a process by which hospitals can simultaneously cancel a § 412.103 reclassification and waive Lugar status.

Response: In circumstances where a Lugar hospital has acquired rural status through § 412.103 in order to be classified by Medicare as an SCH or a MDH, we will allow the act of waiving Lugar status for the out-migration adjustment to simultaneously waives the hospital's deemed urban status and cancel the hospital's acquired rural status, thus treating the hospital as a rural provider effective on October 1. (We note that there are special rules that apply to rural referral centers under § 412.103(g)(1) requiring that urban-to-rural status be maintained for a certain period of time, in order to avoid gaming situations. We are not revising these rules for rural referral centers due to these considerations.)

Comment: Some commenters asked for a policy that would allow waivers of Lugar redesignation in all instances—not just when a hospital is eligible for the out-migration adjustment.

Response: The statute provides two methods for a Lugar hospital to be treated as rural for Medicare payment purposes: (1) If the hospital is eligible for an out-migration adjustment under section 1886(d)(13) of the Act; or (2) if the hospital applies for an urban to rural reclassification under section 1886(d)(8)(E) of the Act. There are no other provisions under the Medicare statute that would allow a Lugar hospital to be treated as a rural provider, given that Lugar status is a deemed status.

8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single Hospital MSAs

Section 412.230 of the regulations sets forth criteria for an individual hospital to apply for geographic reclassification to a higher rural or urban wage index area. Specifically, under § 412.230(a)(3)(ii), an individual hospital may be redesignated from an urban area to another urban area, from a rural area to another rural area, or from a rural area to an urban area for the purpose of using the other area's wage index value. Such a hospital must also meet other criteria. One required criterion (under § 412.230(d)(1)(iii)(C) of the regulations) is that the hospital must demonstrate that its own average hourly wage is higher than the average hourly wage of hospitals in the area in which the hospital is located (108 percent for urban hospitals and 106 percent for rural hospitals). In cases in which a hospital wishing to reclassify is the only hospital in its MSA, that hospital is unable to satisfy this criterion because it cannot demonstrate that its average hourly wage is higher than that of the other hospitals in the area in which the hospital is located (because there are no other hospitals in the area). For hospitals in the category described above, our current policy provides an alternative that allows hospitals to seek reclassification using the group reclassification rules under § 412.232 or § 412.234. Specifically, if a hospital is the single hospital in its area for the 3-year period over which the average hourly wage is calculated for the purpose of the comparison under § 412.230(d)(1)(iii)(C), the hospital may apply for geographic reclassification as a single hospital county group in accordance with the procedures set forth at § 412.232 or § 412.234. In addition to specifying the average hourly wage criteria, these regulations state that the county in which the hospital is located must be adjacent to the urban area to which it seeks redesignation. In addition, a certain level of economic integration needs to exist between the two areas. For example, for urban county group reclassifications (for FY 2008 and subsequent periods), § 412.234(a)(3)(iv) states that “hospitals located in counties that are in the same Combined Statistical Area (CSA) or Core-Based Statistical Area (CBSA) * * * as the urban area to which they seek redesignation qualify as meeting the proximity requirements for reclassification to the urban area to which they seek redesignation.”

Recently, we have been advised of a single hospital MSA scenario of concern to a particular hospital. In this scenario, an urban hospital located in an area in which there was only one other hospital had previously applied for and was granted a reclassification by the MGCRB to an adjacent urban area with a higher wage index. During the 3-year reclassification timeframe, the other hospital in its labor market area closed. After the expiration of its reclassification, the hospital became ineligible for reclassification to that same adjacent urban area with a higher wage index because it was no longer able to satisfy the wage data comparison criteria to reclassify individually under § 412.230(d)(1)(iii)(C). In addition, the hospital could not apply for redesignation under the urban county group regulation at § 412.234 because the hospital was not located in the same CSA or CBSA as the urban area to which it sought reclassification. In this example, the concern that was shared with CMS was that the hospital was competitively disadvantaged in competing for labor with neighboring hospitals where the hospital had a comparable average hourly wage, compared to the other hospitals in its surrounding area, because it receives a lower wage index.

We stated in the proposed rule that we believe that the geographic reclassification regulations should notbe revised to accommodate this situation. We discussed the fact that we have repeatedly rejected special rules to accommodate single hospital MSAs (69 FR 48915, 49109; 71 FR 47869, 48071 and 48072). In these explanations, we have highlighted the fact that hospitals in single hospital MSAs not only may be eligible for out-commuting adjustments, but that they also may apply to an adjacent MSA within the same CSA using the group reclassification rules without meeting the 108-percent test. We explained that each year we propose to adopt the OMB's statistical area definitions (75 FR 50162), so if a hospital in a single hospital MSA cannot meet group reclassification criteria because of the CSA standard, it means that OMB has determined that there is not a sufficient degree of employment interchange to suggest that the areas compete for the same labor. In addition, we explained that when we originally adopted the 108-percent test, we noted that “with respect to single hospital MSAs, a hospital in such an MSA receives a wage index value that is based entirely on its own wage data and, therefore, its actual wage levels. Because such a hospital is clearly not disadvantaged by its inclusion in a labor market area where its wage index is determined based on its own wage levels, it is appropriate under this guideline that a hospital should not be reclassified if it is the only one in its area” (57 FR 39746). In the proposed rule, we expressed concern that allowing a hospital representing 100 percent of its area's wages to be exempt from the wage data comparison test could undermine the 108-percent test for hospitals in other circumstances where the standard cannot be met. Finally, we referred to section 3137(c) of the Affordable Care Act, which prohibits us from altering average hourly wage comparison criteria for FY 2012. That provision states that “notwithstanding any other provision of law,” the MGCRB is required to use the “average hourly wage comparison criteria used in making such decisions as of September 30, 2008,” until the first fiscal year beginning on the date that is one year after the Secretary submits a report to Congress.

In the proposed rule, we solicited public comments on this issue. In particular, we invited comments on the types of regulatory solutions that could be made available to a hospital in this type of situation.

Comment: Commenters suggested that, among other solutions to this issue, the 108 percent test should be waived for hospitals that are the single hospital in the MSA, as it is mathematically impossible to be 108 percent of your own average hourly wage. In addition, commenters suggested that establishing one's own wage index or being eligible for an out-migration adjustment may not result in adequate compensation for a hospital's services. Commenters also noted that, despite the existing remedies of the out-migration adjustment and county group reclassification, a hospital may still be at a disadvantage and unable to compete for labor with a neighboring labor market area that receives a higher wage index. Commenters believed that Congress did not intend to exclude a hospital in a single hospital MSA from the ability to reclassify to another labor market area. Commenters further stated that recognizing county boundaries does not always accurately reflect labor markets, which is why in 1989 Congress established the reclassification process. Therefore, commenters believed the very purpose of Congress creating the reclassification process, that is, to give hospitals an opportunity to be included in a labor market area in which they compete for labor, is not being fulfilled by excluding a hospital in a single hospital MSA the ability to seek reclassification.

Response: While we continue to be concerned regarding the precedent that might be set by exempting a category of hospitals from the 108 percent test, we agree that the current policies for geographic reclassification are disparate for hospitals located in single hospital MSAs compared to hospitals located in multiple hospital MSAs. We acknowledge the commenters' views that this disparity is sometimes a disadvantage because hospitals in single hospital MSAs have fewer options for qualifying for geographic reclassification than hospitals in multiple hospital MSAs. To address the concerns of the commenters, in this final rule, we are making a change in our policy in order to waive a hospital in a single hospital MSA from the average hourly wage comparison criterion under § 412.230(d)(1)(iii)(C) beginning with applications for geographic reclassification for the FY 2013 wage index. That is, a hospital in a single hospital MSA will be exempt from meeting the 108 percent average hourly wage criterion. Accordingly, we are amending our regulation at § 412.230 by adding a new paragraph (d)(5) to reflect this exception for single hospital MSAs. We note that section 3137(b) of Public Law 111-148 requires CMS to submit a report on reforming the wage index to Congress by December 31, 2011. As a result of this statutory requirement, we are currently studying of the entire wage index system, including geographic reclassification. Although we are adopting this new policy for hospitals in single hospital MSAs for reclassification applications starting with FY 2013, we may reevaluate this policy as we formulate a plan to reform the wage index system under the requirements of section 3137(b).

b. Requests for Exceptions to Geographic Reclassification Rules

Over the last several years, CMS has received numerous requests for exceptions to current Medicare law and regulation regarding geographic reclassification or requests to revise the existing regulations in order to allow a hospital or group of hospitals the ability to reclassify to a labor market area with a higher wage index. Section 3137(b) of the Affordable Care Act requires the Secretary to submit a report to Congress that includes a “plan to reform the hospital wage index.” This report to Congress is due by December 31, 2011. As part of our efforts in this regard, in the FY 2012 IPPS/LTCH PPS proposed rule, we solicited public comments, to be considered only as part of our report to Congress and not to be addressed in the FY 2012 IPPS/LTCH PPS final rule, on ways to redefine the geographic reclassification requirements to more accurately define labor markets.

I. FY 2012 Wage Index Adjustment Based on Commuting Patterns of Hospital Employees

In accordance with the broad discretion granted to the Secretary under section 1886(d)(13) of the Act, as added by section 505 of Public Law 108-173, beginning with FY 2005, we established a process to make adjustments to the hospital wage index based on commuting patterns of hospital employees (the “out-migration” adjustment). The process, outlined in the FY 2005 IPPS final rule (69 FR 49061), provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county but work in a different county (or counties) with a higher wage index. Such adjustments to the wage index are effective for 3 years, unless a hospital requests to waive the application of the adjustment. A county will not lose its status as a qualifying county due to hospital wage index changes during the 3-year period, and counties will receive the same wage index increase for those 3 years. However, a county that qualifies in any given year may not necessarily qualifyafter the 3-year period, or it may qualify but receive a different adjustment to the wage index level. Hospitals that receive this adjustment to their wage index are not eligible for reclassification under section 1886(d)(8) or section 1886(d)(10) of the Act. Adjustments under this provision are not subject to the budget neutrality requirements under section 1886(d)(3)(E) of the Act.

Hospitals located in counties that qualify for the wage index adjustment are to receive an increase in the wage index that is equal to the average of the differences between the wage indices of the labor market area(s) with higher wage indices and the wage index of the resident county, weighted by the overall percentage of hospital workers residing in the qualifying county who are employed in any labor market area with a higher wage index. Beginning with the FY 2008 wage index, we use post-reclassified wage indices when determining the out-migration adjustment (72 FR 47339).

For the FY 2012 wage index, we calculated the out-migration adjustment using the same formula described in the FY 2005 IPPS final rule (69 FR 49064), with the addition of using the post-reclassified wage indices, to calculate the out-migration adjustment. This adjustment is calculated as follows:

Step 1—Subtract the wage index for the qualifying county from the wage index of each of the higher wage area(s) to which hospital workers commute.

Step 2—Divide the number of hospital employees residing in the qualifying county who are employed in such higher wage index area by the total number of hospital employees residing in the qualifying county who are employed in any higher wage index area. For each of the higher wage index areas, multiply this result by the result obtained in Step 1.

Step 3—Sum the products resulting from Step 2 (if the qualifying county has workers commuting to more than one higher wage index area).

Step 4—Multiply the result from Step 3 by the percentage of hospital employees who are residing in the qualifying county and who are employed in any higher wage index area.

These adjustments will be effective for each county for a period of 3 fiscal years. For example, hospitals that received the adjustment for the first time in FY 2011 will be eligible to retain the adjustment for FY 2012. For hospitals in newly qualified counties, adjustments to the wage index are effective for 3 years, beginning with discharges occurring on or after October 1, 2011.

Hospitals receiving the wage index adjustment under section 1886(d)(13)(F) of the Act are not eligible for reclassification under sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-migration adjustment. Consistent with our FYs 2005 through 2011 IPPS final rules, we are specifying that hospitals redesignated under section 1886(d)(8) of the Act or reclassified under section 1886(d)(10) of the Act are deemed to have chosen to retain their redesignation or reclassification. Hospitals that reclassified under section 1886(d)(10) of the Act that wished to receive the out-migration adjustment, rather than their reclassification adjustment, had to follow the termination/withdrawal procedures specified in 42 CFR 412.273 and section III.H.3. of the preamble of the FY 2012 proposed rule. Otherwise, they were deemed to have waived the out-migration adjustment. Hospitals redesignated under section 1886(d)(8)(B) of the Act were deemed to have waived the out-migration adjustment unless they explicitly notified CMS within 45 days from the publication of the FY 2012 proposed rule that they elected to receive the out-migration adjustment instead. As noted in sections III.H.3.a. and III.H.4. of this preamble, due to the correction of the FY 2012 proposed outmigration adjustment, we extended the 45-day deadline and allowed hospitals a 7-day period from the date of display of the July 13, 2011 correction notice (that is, by July 18, 2011) (76 FR 41178).

Table 4J, which is listed in section VI. of the Addendum to this final rule and available via the Internet, lists the out-migration wage index adjustments for FY 2012. Hospitals that are not otherwise reclassified or redesignated under section 1886(d)(8) or section 1886(d)(10) of the Act will automatically receive the listed adjustment. In accordance with the procedures discussed above, redesignated/reclassified hospitals will be deemed to have waived the out-migration adjustment unless CMS was otherwise notified within the timeframe stated above. In addition, hospitals eligible to receive the out-migration wage index adjustment and that withdrew their application for reclassification will automatically receive the wage index adjustment listed in Table 4J, which is listed in section VI. of the Addendum to this final rule and available via the Internet.

J. Process for Requests for Wage Index Data Corrections

The preliminary, unaudited Worksheet S-3 wage data and occupational mix survey data files for the proposed FY 2012 wage index were made available on October 4, 2010, through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.

In the interest of meeting the data needs of the public, beginning with the proposed FY 2009 wage index, we post an additional public use file on our Web site that reflects the actual data that are used in computing the proposed wage index. The release of this new file does not alter the current wage index process or schedule. We notified the hospital community of the availability of these data as we do with the current public use wage data files through our Hospital Open Door forum. We encouraged hospitals to sign up for automatic notifications of information about hospital issues and the scheduling of the Hospital Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.

In a memorandum dated October 13, 2010, we instructed all fiscal intermediaries/MACs to inform the IPPS hospitals they service of the availability of the wage index data files and the process and timeframe for requesting revisions (including the specific deadlines listed below). We also instructed the fiscal intermediaries/MACs to advise hospitals that these data were also made available directly through their representative hospital organizations.

If a hospital wished to request a change to its data as shown in the October 4, 2010 wage and occupational mix data files, the hospital had to submit corrections along with complete, detailed supporting documentation to its fiscal intermediary/MAC by December 6, 2010. Hospitals were notified of this deadline and of all other deadlines and requirements, including the requirement to review and verify their data as posted on the preliminary wage index data files on the Internet, through the October 13, 2010 memorandum referenced above.

In the October 13, 2010 memorandum, we also specified that a hospital requesting revisions to its occupational mix survey data was to copy its record(s) from the CY 2007-2008 occupational mix preliminary files posted to our Web site in October, highlight the revised cells on its spreadsheet, and submit its spreadsheet(s) and completedocumentation to its fiscal intermediary/MAC no later than December 6, 2010.

The fiscal intermediaries/MACs notified the hospitals by mid-February 2011 of any changes to the wage index data as a result of the desk reviews and the resolution of the hospitals' early-December revision requests. The fiscal intermediaries/MACs also submitted the revised data to CMS by mid-February 2011. CMS published the proposed wage index public use files that included hospitals' revised wage index data on February 22, 2011. Hospitals had until March 7, 2011, to submit requests to the fiscal intermediaries/MACs for reconsideration of adjustments made by the fiscal intermediaries/MACs as a result of the desk review, and to correct errors due to CMS' or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the wage index data. Hospitals also were required to submit sufficient documentation to support their requests.

After reviewing requested changes submitted by hospitals, fiscal intermediaries/MACs were required to transmit any additional revisions resulting from the hospitals' reconsideration requests by April 13, 2011. The deadline for a hospital to request CMS intervention in cases where the hospital disagrees with the fiscal intermediary's (or, if applicable, the MAC's) policy interpretations was April 20, 2011.

Hospitals were given the opportunity to examine Table 2, which is listed in section VI. of the Addendum to the proposed rule and available via the Internet. Table 2 contained each hospital's adjusted average hourly wage used to construct the wage index values for the past 3 years, including the FY 2008 data used to construct the proposed FY 2012 wage index. We noted that the hospital average hourly wages shown in Table 2 only reflected changes made to a hospital's data that were transmitted to CMS by March 2011.

We released the final wage index data public use files in early May 2011 on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The May 2011 public use files were made available solely for the limited purpose of identifying any potential errors made by CMS or the fiscal intermediary/MAC in the entry of the final wage index data that resulted from the correction process described above (revisions submitted to CMS by the fiscal intermediaries/MACs by April 13, 2011). If, after reviewing the May 2011 final public use files, a hospital believed that its wage or occupational mix data were incorrect due to a fiscal intermediary/MAC or CMS error in the entry or tabulation of the final data, the hospital had to send a letter to both its fiscal intermediary/MAC and CMS that outlined why the hospital believed an error existed and provided all supporting information, including relevant dates (for example, when it first became aware of the error). CMS and the fiscal intermediaries (or, if applicable, the MACs) had to receive these requests no later than June 6, 2011.

Each request also had to be sent to the fiscal intermediary/MAC. The fiscal intermediary/MAC reviewed requests upon receipt and contacted CMS immediately to discuss any findings.

After the release of the May 2011 wage index data files, changes to the wage and occupational mix data were only made in those very limited situations involving an error by the fiscal intermediary/MAC or CMS that the hospital could not have known about before its review of the final wage index data files. Specifically, neither the fiscal intermediary/MAC nor CMS approved the following types of requests:

  • Requests for wage index data corrections that were submitted too late to be included in the data transmitted to CMS by fiscal intermediaries or the MACs on or before April 13, 2011.
  • Requests for correction of errors that were not, but could have been, identified during the hospital's review of the February 22, 2011 wage index public use files.
  • Requests to revisit factual determinations or policy interpretations made by the fiscal intermediary or the MAC or CMS during the wage index data correction process.

Verified corrections to the wage index data received timely by CMS and the fiscal intermediaries or the MACs (that is, by June 6, 2011) were incorporated into the final wage index in the FY 2012 IPPS/LTCH PPS final rule, which will be effective October 1, 2011.

We created the processes described above to resolve all substantive wage index data correction disputes before we finalize the wage and occupational mix data for the FY 2012 payment rates. Accordingly, hospitals that did not meet the procedural deadlines set forth above will not be afforded a later opportunity to submit wage index data corrections or to dispute the fiscal intermediary's (or, if applicable, the MAC's) decision with respect to requested changes. Specifically, our policy is that hospitals that do not meet the procedural deadlines set forth above will not be permitted to challenge later, before the Provider Reimbursement Review Board, the failure of CMS to make a requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for a discussion of the parameters for appeals to the PRRB for wage index data corrections.

Again, we believe the wage index data correction process described above provides hospitals with sufficient opportunity to bring errors in their wage and occupational mix data to the fiscal intermediary's (or, if applicable, the MAC's) attention. Moreover, because hospitals had access to the final wage index data by early May 2011, they had the opportunity to detect any data entry or tabulation errors made by the fiscal intermediary or the MAC or CMS before the development and publication of the final FY 2012 wage index by August 2011, and the implementation of the FY 2012 wage index on October 1, 2011. If hospitals availed themselves of the opportunities afforded to provide and make corrections to the wage and occupational mix data, the wage index implemented on October 1 should be accurate. Nevertheless, in the event that errors are identified by hospitals and brought to our attention after June 6, 2011, we retain the right to make midyear changes to the wage index under very limited circumstances.

Specifically, in accordance with 42 CFR 412.64(k)(1) of our existing regulations, we make midyear corrections to the wage index for an area only if a hospital can show that: (1) The fiscal intermediary or the MAC or CMS made an error in tabulating its data; and (2) the requesting hospital could not have known about the error or did not have an opportunity to correct the error, before the beginning of the fiscal year. For purposes of this provision, “before the beginning of the fiscal year” means by the June 6 deadline for making corrections to the wage data for the following fiscal year's wage index. This provision is not available to a hospital seeking to revise another hospital's data that may be affecting the requesting hospital's wage index for the labor market area. As indicated earlier, because CMS makes the wage index data available to hospitals on the CMS Web site prior to publishing both the proposed and final IPPS rules, and the fiscal intermediaries or the MACs notify hospitals directly of any wage index data changes after completing their desk reviews, we do not expect that midyear corrections will be necessary. However,under our current policy, if the correction of a data error changes the wage index value for an area, the revised wage index value will be effective prospectively from the date the correction is made.

In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR 412.64(k)(2) to specify that, effective on October 1, 2005, that is, beginning with the FY 2006 wage index, a change to the wage index can be made retroactive to the beginning of the Federal fiscal year only when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating data used for the wage index calculation; (2) the hospital knew about the error and requested that the fiscal intermediary (or, if applicable, the MAC) and CMS correct the error using the established process and within the established schedule for requesting corrections to the wage index data, before the beginning of the fiscal year for the applicable IPPS update (that is, by the June 6, 2011 deadline for the FY 2012 wage index); and (3) CMS agreed that the fiscal intermediary (or, if applicable, the MAC) or CMS made an error in tabulating the hospital's wage index data and the wage index should be corrected.

In those circumstances where a hospital requested a correction to its wage index data before CMS calculated the final wage index (that is, by the June 6, 2011 deadline), and CMS acknowledges that the error in the hospital's wage index data was caused by CMS' or the fiscal intermediary's (or, if applicable, the MAC's) mishandling of the data, we believe that the hospital should not be penalized by our delay in publishing or implementing the correction. As with our current policy, we indicated that the provision is not available to a hospital seeking to revise another hospital's data. In addition, the provision cannot be used to correct prior years' wage index data; and it can only be used for the current Federal fiscal year. In other situations where our policies would allow midyear corrections, we continue to believe that it is appropriate to make prospective-only corrections to the wage index.

We note that, as with prospective changes to the wage index, the final retroactive correction will be made irrespective of whether the change increases or decreases a hospital's payment rate. In addition, we note that the policy of retroactive adjustment will still apply in those instances where a judicial decision reverses a CMS denial of a hospital's wage index data revision request.

K. Labor-Related Share for the FY 2012 Wage Index

Section 1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion of the national prospective payment system base payment rates that are attributable to wages and wage-related costs by a factor that reflects the relative differences in labor costs among geographic areas. It also directs the Secretary to estimate from time to time the proportion of hospital costs that are labor-related: “The Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of hospitals' costs which are attributable to wages and wage-related costs of the DRG prospective payment rates * * *” We refer to the portion of hospital costs attributable to wages and wage-related costs as the labor-related share. The labor-related share of the prospective payment rate is adjusted by an index of relative labor costs, which is referred to as the wage index.

Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this “would result in lower payments to a hospital than would otherwise be made.” However, this provision of Public Law 108-173 did not change the legal requirement that the Secretary estimate “from time to time” the proportion of hospitals' costs that are “attributable to wages and wage-related costs.” We believe that this reflected Congressional intent that hospitals receive payment based on either a 62-percent labor-related share, or the labor-related share estimated from time to time by the Secretary, depending on which labor-related share resulted in a higher payment.

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 through 43856), we rebased and revised the hospital market basket for operating costs. We established a FY-2006-based IPPS hospital market basket to replace the FY 2002-based IPPS hospital market basket, effective October 1, 2009. In that final rule, we presented our analysis and conclusions regarding the frequency and methodology for updating the labor-related share for FY 2010. We also recalculated a labor-related share of 68.8 percent, using the FY 2006-based IPPS market basket, for discharges occurring on or after October 1, 2009. In addition, we implemented this revised and rebased labor-related share in a budget neutral manner, but consistent with section 1886(d)(3)(E) of the Act, we did not take into account the additional payments that would be made as a result of hospitals with a wage index less than or equal to 1.0 being paid using a labor-related share lower than the labor-related share of hospitals with a wage index greater than 1.0.

The labor-related share is used to determine the proportion of the national IPPS base payment rate to which the area wage index is applied. In this final rule, as we proposed, we are not making any further changes to the national average proportion of operating costs that are attributable to wages and salaries, fringe benefits, contract labor, the labor-related portion of professional fees, administrative and business support services, and all other labor-related services (previously referred to in the FY 2002-based IPPS market basket as labor-intensive).

Therefore, for FY 2012, we are continuing to use a labor-related share of 68.8 percent for discharges occurring on or after October 1, 2011. Tables 1A and 1B, which are published in section VI. of the Addendum to this final rule and available via the Internet, reflect this labor-related share. We note that section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 62 percent as the labor-related share unless this employment “would result in lower payments to a hospital than would otherwise be made.” Therefore, for all IPPS hospitals whose wage indices are less than 1.0000, we applied the wage index to a labor-related share of 62 percent of the national standardized amount. For all IPPS hospitals whose wage indices are greater than 1.0000, we applied the wage index to a labor-related share of 68.8 percent of the national standardized amount. For Puerto Rico hospitals, the national labor-related share will always be 62 percent because the national wage index for all Puerto Rico hospitals is less than 1.0. As we proposed, in this final rule, we are continuing to use a labor-related share for the Puerto Rico-specific standardized amounts of 62.1 percent for discharges occurring on or after October 1, 2011. This Puerto Rico labor-related share of 62.1 percent was also adopted in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43857) at the time the FY 2006-based hospital market basket was established, effective October 1, 2009. Consistent with our methodology for determining the national labor-related share, we added the Puerto Rico-specific relative weights for wages and salaries, fringe benefits, contract labor, the labor-related portion of professional fees, administrative and business support services, and all other labor-related services (previously referred to in the FY 2002-based IPPS marketbasket as labor-intensive) to determine the labor-related share. Puerto Rico hospitals are paid based on 75 percent of the national standardized amounts and 25 percent of the Puerto Rico-specific standardized amounts. The labor-related share of a hospital's Puerto Rico-specific rate will be either the Puerto Rico-specific labor-related share of 62.1 percent or 62 percent, depending on which results in higher payments to the hospital. If the hospital has a Puerto Rico-specific wage index of greater than 1.0, we will set the hospital's rates using a labor-related share of 62.1 percent for the 25 percent portion of the hospital's payment determined by the Puerto Rico standardized amounts because this amount will result in higher payments. Conversely, a hospital with a Puerto Rico-specific wage index of less than 1.0 will be paid using the Puerto Rico-specific labor-related share of 62 percent of the Puerto Rico-specific rates because the lower labor-related share will result in higher payments. The Puerto Rico labor-related share of 62.1 percent for FY 2012 is reflected in the Table 1C, which is published in section VI. of the Addendum to this final rule and available via the Internet.

IV. Other Decisions and Changes to the IPPS for Operating Costs and GME Costs

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. Overview

CMS is seeking to promote higher quality and more efficient healthcare for Medicare beneficiaries. This effort is supported by the adoption of an increasing number of widely-agreed upon quality measures. CMS has worked with relevant stakeholders to define measures of quality in almost every setting and measures various aspects of care for almost all Medicare beneficiaries. These measures assess structural aspects of care, clinical processes, patient experiences with care, and, increasingly, outcomes.

CMS has implemented quality measure reporting programs for multiple settings of care. To measure the quality of hospital inpatient services, CMS implemented the Hospital Inpatient Quality Reporting (IQR) Program (formerly referred to as the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) Program). In addition, CMS has implemented quality reporting programs for hospital outpatient services, the Hospital Outpatient Quality Reporting (OQR) Program (formerly referred to as the Hospital Outpatient Quality Data Reporting Program (HOP QDRP)), and for physicians and other eligible professionals, the Physician Quality Reporting System (formerly referred to as the Physician Quality Reporting Program Initiative (PQRI)). CMS has also implemented quality reporting programs for home health agencies and skilled nursing facilities that are based on conditions of participation, and an end-stage renal disease quality incentive program (76 FR 628 through 646) that links payment to performance.

In implementing the Hospital IQR Program and other quality reporting programs, we have focused on measures that have high impact and support CMS and HHS priorities for improved quality and efficiency of care for Medicare beneficiaries. Our goal for the future is to align the clinical quality measure requirements of the Hospital IQR Program with various other programs, including those authorized by the Health Information Technology for Economic and Clinical Health (HITECH) Act so that the burden for reporting will be reduced.

We also are implementing a Hospital Value-Based Purchasing (VBP) Program under section 1886(o) of the Act. Earlier this year, we issued a final rule (76 FR 26490 through 26547) (the Hospital Inpatient VBP Program final rule) that implemented the Hospital VBP Program. We proposed additional policies for the Hospital VBP Program in section IV.B. of the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25926 through 25928) and in section XVI. of the CY 2012 OPPS/ASC proposed rule (76 FR 42354 through 42365). In the Hospital Inpatient VBP Program proposed rule (76 FR 2454 through 2491), we proposed that hospitals would receive value-based incentive payments if they meet performance standards with respect to measures for a performance period for the fiscal year involved. The measures under the Hospital VBP Program must be selected from the measures specified under the Hospital IQR Program. The Hospital VBP Program will apply to payments for discharges occurring on or after October 1, 2012, in accordance with section 1886(o) of the Act.

The Hospital IQR Program is intertwined with the Hospital VBP Program because the measures and reporting infrastructure for both programs will overlap. We view the Hospital VBP Program as the next step in promoting higher quality care for Medicare beneficiaries by transforming Medicare into an active purchaser of quality health care for its beneficiaries. As we stated in the Hospital Inpatient VBP Program proposed rule (76 FR 2455), in developing that proposed rule as well as other value-based payment initiatives, we applied the following principles for the development and use of measures and scoring methodologies:

Purpose:

  • We view value-based purchasing as an important step to revamping how care and services are paid for, moving increasingly toward rewarding better value, outcomes, and innovations instead of merely volume.

Use of Measures:

  • Public reporting and value-based payment systems should rely on a mix of standards, process, outcomes, and patient experience of care measures, including measures of care transitions and changes in patient functional status. Across all programs, we seek to move as quickly as possible to the use of primarily outcome and patient experience measures. To the extent practicable and appropriate, outcome and patient experience measures should be adjusted for risk or other appropriate patient population or provider characteristics.
  • To the extent possible and recognizing differences in payment system maturity and statutory authorities, measures should be aligned across public reporting and payment systems under Medicare and Medicaid. The measure sets should evolve so that they include a focused core set of measures appropriate to the specific provider category that reflects the level of care and the most important areas of service and measures for that provider.
  • The collection of information should minimize the burden on providers to the extent possible. As part of that effort, we will continuously seek to align our measures with the adoption of meaningful use standards for health information technology (HIT), so the collection of performance information is part of care delivery.
  • To the extent practicable, measures used by CMS should be nationally endorsed by a multi-stakeholder organization. Measures should be aligned with best practices among other payers and the needs of the end users of the measures.

We invited public comment on these principles.

Comment: Many commenters supported CMS' measure selection principles for the Hospital IQR Program and the Hospital VBP Program. The commenters believed that these principles reflect the efficacy of quality measure reporting, reduce data collection burdens and facilitate alignment of measures across Medicare programs. Furthermore, the commenters applauded CMS' overarching goal ofimproving the quality and cost-effectiveness of care provided in health care institutions.

Response: We appreciate the commenters' support. We will continue implementing these principles to reach our goal to foster quality improvement, establish strong and effective quality standards, and systematically link quality to payment in various healthcare settings.

Comment: Many commenters overwhelmingly supported our efforts to enhance healthcare quality transparency through the public reporting of quality measures.

Response: We appreciate the commenters' support of public reporting of quality measures.

Comment: Many commenters stated that with the increasing number of measures across the Medicare and Medicaid programs, CMS should align the measures adopted for various Medicare programs whenever possible to reduce the hospital reporting burden. One commenter further suggested that future measure reporting alignment across payers would reduce the burden of quality reporting and also allow for the meaningful comparison of healthcare quality.

Response: We recognize that the addition of manually chart-abstracted measures to the Hospital IQR Program over time has increased the reporting burden on hospitals. Aligning and harmonizing measures across Medicare programs and implementing electronic measure reporting are high priority goals for us, and we seek to further these goals as we select measures for our programs. We agree with the commenters regarding the importance of measure alignment across our programs in order to provide meaningful comparative information for beneficiaries, and we have sought to collect and utilize all-patient data for the measures used in our programs wherever possible. Currently, we collect all-patient data for all of the chart-abstracted and survey-based measures for the Hospital IQR, and Hospital OQR Programs. We also agree that alignment of measure reporting requirments across payers would also reduce burden among providers responding to multiple reporting requirements. CMS has adopted many measures that are in widespread use in the industry and by other payers, and will continue to do so when feasible and practicable.

Comment: One commenter encouraged CMS to articulate the relationship between the measures selected for the Hospital IQR Program and the framework laid out in the National Quality Strategy.

Response: In March 2011, HHS issued a Report to Congress entitled “National Strategy for Quality Improvement in Health Care [National Quality Strategy].” The National Quality Strategy was developed with input from stakeholders across the health care system, including Federal and State agencies, local communities, provider organizations, clinicians, patients, businesses, employers, and payers. The National Quality Strategy is located at: http://www.healthcare.gov/center/reports/nationalqualitystrategy032011.pdf.

The purpose of the National Quality Strategy is to provide a strategic plan for improving health care, of which measurement is an integral component. The National Quality Strategy promotes three overarching aims—Better Care (improving overall quality by making health care more patient-centered reliable, accessible and safe), Healthy People/Healthy Communities (improving the health of the U.S. population by supporting proven interventions to address behavioral, social and, environmental determinants of health in addition to delivering higher-quality care), and Affordable Care (reducing the cost of quality health care for individuals, families, employers, and government). The NQS also lists six priorities to target in furthering these goals: (1) Making care safer by reducing harm caused in the delivery of care; (2) ensuring that each person and family are engaged as a partner in their care; (3) promoting effective communication and coordination of care; (4) promoting the most effective prevention and treatment practices for the leading causes of mortality, starting with cardiovascular disease; (5) working with communities to promote wide use of best practices to enable healthy living; and (6) making quality care more affordable for individuals, families, employers, and governments by developing and spreading new health care delivery models.

Our measure selection activity for the Hospital IQR Program directly addresses the first five of these six priorities. For example, the selection of Hospital Acquired Condition (HAC) measures, Healthcare-Associated Infection (HAI) measures, and AHRQ Patient Safety Indicators (PSIs) and Inpatient Quality Indicators (IQIs) addresses the first priority of safer healthcare, and reduction of harm. The selection of the HCAHPS survey addresses the second priority of patient/family engagement. The risk-adjusted 30-day readmission and 30-day mortality measures address effective coordination of care. The current process of care measures for AMI, HF, PN, and Surgical Care address effective prevention and treatment practices. Lastly, the structural measures adopted for the Hospital IQR Program address encouragement of best practices. To the extent that the measures we have adopted for Hospital IQR are used in CMS value-based purchasing programs, alternative payment demonstrations, and the evaluation of new delivery system models, the measures also address the sixth priority area of the National Quality Strategy.

Comment: One commenter expressed concern about the overlap in the use of the same HACs in the Hospital IQR and Hospital VBP Programs. The commenter suggested that CMS adopt mutually exclusive HAC measures so that hospitals are not penalized for the same HAC measures adopted for various Medicare programs.

Response: We do not agree with the commenter's view that the implementation of the same HAC measures in both the Hospital VBP and Hospital IQR Programs would penalize hospitals twice with respect to these measures. Under section 1886(o)(1)(C)(ii)(I) of the Act, a hospital that is subject to the payment reduction under the Hospital IQR Program with respect to a fiscal year is excluded from the Hospital VBP Program for that year.

Also, as we stated in the Hospital Inpatient VBP Program final rule (76 FR 26504), we view the program authorized by section 3008 of the Affordable Care Act and the Hospital VBP Program as being related but separate efforts to reduce HACs. Although the Hospital VBP Program is an incentive program that provides incentive-based payments to hospitals based on quality performance, the program established by section 3008 of the Affordable Care Act creates a payment adjustment resulting in payment reductions for the lowest performing hospitals.

We also view programs that could potentially affect a hospital's Medicaid payment as separate from programs that could potentially affect a hospital's Medicare payment, although we intend to monitor the various interactions of programs authorized by the Affordable Care Act and their overall impact on providers and suppliers.

Comment: A few commenters suggested that CMS should adopt NQF-endorsed measures whenever possible. A commenter further noted that if CMS adopts non-NQF-endorsed measures, these measures should be formally tested prior to their inclusion in the Hospital IQR Program. Another commenter stated that if CMS considersadopting measures that are endorsed by organizations other than the NQF, CMS should ensure that such organizations demonstrate strong consensus activities from consumers, healthcare organizations, physicians and other relevant professionals, purchasers and payers, and the organizations should have demonstrated expertise in healthcare quality measurement. A commenter suggested that CMS seek expedited NQF review of non-NQF-endorsed measures under consideration.

Response: We thank the commenters for all their suggestions for measure endorsement. We have generally adopted NQF-endorsed measures whenever possible. For non-NQF endorsed measures developed by CMS, we use a consensus-based measure development process that includes broad stakeholder input, and as part of this development process, we test feasibility, validity, and reliability whenever feasible and practicable.

Section 3001(a)(2) of the Affordable Care Act amended section 1886(b)(3)(B)(viii) of the Act to provide a different standard for quality measures included in the Hospital IQR Program for payments beginning with FY 2013. Under the amended provision of the Act, for payments beginning with FY 2013, each measure specified by the Secretary must be endorsed by a consensus entity that has a contract with the Secretary under section 1890(a) of the Act (currently the NQF), except in certain circumstances. Specifically, in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the consensus entity, the Secretary may specify a measure that is not endorsed by the consensus entity if due consideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary.

We thank the commenters for suggesting that we attempt to expedite NQF review of non-NQF-endorsed measures under consideration for the Hospital IQR Program, and we will consider doing so for measures for which CMS is the steward.

Comment: One commenter expressed concerns about the sufficiency of the risk-adjustment methods for the proposed process of care and outcome measures. The commenter recommended that CMS and AHRQ convene an expert panel to develop risk-adjustment for the measures used in the Hospital IQR, Hospital Readmissions Reduction and Hospital VBP Programs. Commenters stated that risk-adjustments should include patient demographic factors (for example, age, sex, race, and socioeconomic status), severity of illness, and types of services being provided.

Response: The current 30-day outcome measures and AHRQ PSIs and IQIs in the Hospital IQR Program are NQF-endorsed, and are risk adjusted using NQF-endorsed risk adjustment methodologies that include clinical risk factors. The current NQF policy for risk adjustment does not encourage risk adjustment for non-clinical patient demographic factors, because doing so may obscure disparities in care provided by hospitals to disadvantaged groups. The risk adjustment methodology employed in the NQF-endorsed outcome measures adopted for the Hospital IQR Program, therefore, would follow these principles.

Most of the outcome measures used in these programs are restricted to a specific condition or procedure, and therefore do not need to be adjusted for the type of service being provided as suggested by one of the commenters. Other outcome measures, such as the HACs, assess “never events” or serious reportable events that would not be appropriate to risk adjust for either clinical or demographic factors. CMS and AHRQ both participate in Measure Application Partnership workgroups convened by the NQF. These workgroups are tasked with issuing recommendations to HHS on various aspects of measurement (such as appropriate risk adjustment) for consideration in HHS' programs.

Comment: Some commenters urged CMS to focus heavily on outcome measures.

Response: We agree with the commenters. The adoption of outcome measures has always been and will remain as a priority goal for the Hospital IQR and Hospital VBP Programs.

We thank the commenters for their comments on our measure development principles, and we will consider these comments as we develop and select measures in the future.

b. Statutory History and History of Measures Adopted for the Hospital IQR Program

We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43860) and the FY 2011 IPPS/LTCH PPS final rule (75 FR 50180) for detailed discussions of the history of the Hospital IQR Program, including the statutory history and the measures we have adopted for the Hospital IQR measure set through FY 2014.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25891), we sought comments on an option that would allow us from time to time to consider a range of consensus endorsement entities or bodies that can assist us with our measure development process. We believe that this approach would provide for a diverse endorsement process and the best body of evidence to support measures used in our quality programs.

Comment: Several commenters recommended that CMS use the NQF as the sole consensus entity. These commenters stated that the NQF, which is composed of healthcare stakeholders, has developed a robust measurement evaluation system for the measure's importance, scientific acceptability, feasibility and usability, and their endorsed measures are gold standards. Other commenters recommended the NQF, Hospital Quality Alliance (HQA), and Measure Application Partnership (MAP) as consensus endorsement entities for assisting CMS in the measure development process. These commenters considered these organizations as the primary consensus groups for hospital quality reporting. These commenters believed that the HQA, composed of public and private partners, can appropriately select NQF-endorsed measures that best assess quality in high priority areas. These commenters also pointed out that the MAP was created under the Affordable Care Act, and aimed to recommend a coordinated set of measures for acute hospital, physician and long-term care hospital quality reporting. One commenter requested clarification as to which other entities are being considered by CMS for inclusion in its list(s) of consensus endorsement entities.

Response: We thank the commenters for their suggestions. Under section 1886(b)(3)(B)(viii)(IX) of the Act, for payments beginning with FY 2013, each measure specified by the Secretary under the Hospital IQR Program must be endorsed by the entity with a contract under section 1890(a) of the Act, except in certain circumstances. This contract is currently held by the NQF, and for this reason, we generally look to the NQF for endorsement of the measures we are considering for the Hospital IQR Program. However, in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the consensus entity, the Secretary may specify a measure that is not endorsed by the consensus entity if due consideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary.

We also note that we give consideration to suggestions from other organizations such as the HQA, and the newly convened MAP, as well as from public comment received through rulemaking. As stated in the proposed rule, we strive to align measures where possible and appropriate across programs.

c. Maintenance of Technical Specifications for Quality Measures

The technical specifications for the Hospital IQR Program measures, or links to Web sites hosting technical specifications, are contained in the CMS/The Joint Commission Specifications Manual for National Hospital Inpatient Quality Measures (Specifications Manual). This Specifications Manual is posted on the CMS QualityNet Web site at https://www.QualityNet.org. We maintain the technical specifications by updating this Specifications Manual semiannually, or more frequently in unusual cases, and include detailed instructions and calculation algorithms for hospitals to use when collecting and submitting data on required measures. These semiannual updates are accompanied by notifications to users, providing sufficient time between the change and the effective date in order to allow users to incorporate changes and updates to the specifications into data collection systems.

The technical specifications for the HCAHPS patient experience of care survey are contained in the current HCAHPS Quality Assurance Guidelines manual, which is available at the HCAHPS On-Line Web site, http://www.hcahpsonline.org. We maintain the HCAHPS technical specifications by updating the HCAHPS Quality Assurance Guidelines manual annually, and include detailed instructions on survey implementation, data collection, data submission and other relevant topics. As necessary, HCAHPS Bulletins are issued to provide notice of changes and updates to technical specifications in HCAHPS data collection systems.

Comment: One commenter requested that CMS exercise its administrative authority to add the new FDA-approved Fidaxomicin off-cycle via Release Note to the current Specification Manual for National Hospital Inpatient Quality Measures (3.3a), Medication List—Appendix C—Table 2.1 “Antimicrobial Medications—for hospital discharges as of April 1, 2011.”

Response: We convene Technical Expert Panels (TEPs) for measure development and maintenance in order to ensure that our measures reflect current science, evidence-based clinical practice guidelines, and best practices. We will take this suggestion under consideration during our measure maintenance process, which informs changes to the Specification Manual.

d. Public Display of Quality Measures

Section 1886(b)(3)(B)(viii)(VII) of the Act, as amended by section 3001(a)(2) of the Affordable Care Act, requires that the Secretary establish procedures for making information regarding measures submitted available to the public after ensuring that a hospital has the opportunity to review its data before they are made public. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25891 through 25892), we proposed to display information regarding the measures (such as names of measures for which data will be displayed in the future) on the Hospital Compare Web site under this provision, and invited public comment on this proposal. We will continue our current practice of reporting data from the Hospital IQR Program as soon as it is feasible on CMS Web sites such as the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov, after a 30-day preview period.

The Hospital Compare Web site is an interactive Web tool that assists beneficiaries by providing information on hospital quality of care to those who need to select a hospital. It further serves to encourage beneficiaries to work with their doctors and hospitals to discuss the quality of care hospitals provide to patients, thereby providing an additional incentive to hospitals to improve the quality of care that they furnish. The Hospital IQR Program currently includes process of care measures, risk-adjusted outcome measures, the HCAHPS patient experience-of-care survey, and structural measures, all of which are featured on the Hospital Compare Web site.

However, information that may not be relevant to or easily understood by beneficiaries and information for which there are unresolved display issues or design considerations for inclusion on Hospital Compare may be made available on other CMS Web sites that are not intended to be used as an interactive Web tool, such as http://www.cms.hhs.gov/HospitalQualityInits/. Publicly reporting the information in this manner, though not on the Hospital Compare Web site, allows CMS to meet the requirement under section 1886(b)(3)(B)(viii)(VII) of the Act for establishing procedures to make information regarding measures submitted under the Hospital IQR Program available to the public following a preview period. In such circumstances, affected parties are notified via CMS listservs, CMS e-mail blasts, national provider calls, and QualityNet announcements regarding the release of preview reports followed by the posting of data on a Web site other than Hospital Compare.

Comment: Many commenters overwhelmingly supported the increasing transparency in public reporting and appreciated CMS's principles for selecting measures. The commenters believed that these principles reflect practical aspects of quality data reporting such as reducing the burden of data collection on providers as well as aligning measures across programs. The commenters stated that CMS should ensure that this performance measure information is meaningful in improving patient care outcomes. Some commenters stated that more consumer education on performance measure data displayed on Hospital Compare is needed for meaningful interpretation of the data and identification of opportunities to improve patient outcomes.

Response: We greatly appreciate the commenters' support of public quality reporting and agree that consumer education is an ongoing process. We continuously strive to improve the user-friendliness of Hospital Compare Web site design and educate Medicare beneficiaries in understanding healthcare quality and healthcare trends. For example, we conduct periodic consumer testing to find out consumer preference for measure domains, understanding of measures and associated explanatory text. We believe that the reporting of various hospital quality metrics incentivizes hospitals to assess their patient care performance and identify opportunities to improve patient outcomes. In addition, the healthcare information released on Hospital Compare has become a popular resource for beneficiaries when they need to make decisions regarding their healthcare.

Comment: A few commenters opposed our intention to display measure names for which data will be displayed in the future on the Hospital Compare Web site. The commenters believed that the display of more descriptive information on future measures would help consumers better understand what the future measures are. The commenters believed that displaying only the measure names would not be helpful to consumers who need to choose a hospital for medical care.

Response: We use the Hospital Compare“spotlight” section tohighlight upcoming changes to the site, including the addition of new measures, topics, and future potential Hospital VBP Program measures. The measure names alone are not intended to drive consumer choice regarding which hospital to select, but we believe that highlighting names of measures to be added to Hospital Compare introduces possible new topic areas that consumers can discuss with their physicians in choosing a hospital. We also provide information about why the new measure topic may be important to know about.

Comment: Some commenters stated that data display on Hospital Compare should cater to consumers who visit Hospital Compare for information related to short-term healthcare decisions.

Response: We interpret the commenters' statements to mean that the information displayed on the Hospital Compare should provide information to help consumers to make informed decisions regarding inpatient acute care services (for example, treatments, tests, procedures or surgeries) that may be provided by a hospital. Hospital Compare is designed to be a consumer-oriented Web site where consumers can obtain information on how well hospitals provide care to their patients. The Web site displays quality data on process of care and outcome measures for heart attack, heart failure, pneumonia and surgical care as measured by the Surgical Care Improvement Project (SCIP). In the future, we will display data on other topics, such as Hospital-Associated Infections (HAIs) and complications of care. We will continue to post data to the Web site in a manner that is easy for consumers of the data to understand.

Comment: A few commenters opposed CMS' current practice of publishing performance measure information on Web sites other than Hospital Compare for information that may not be relevant to or easily understood by beneficiaries and information for which there are unresolved display issues or design considerations for inclusion on Hospital Compare. The commenters were concerned that it would be difficult for providers and consumers to navigate and track information on multiple sites and supported Hospital Compare as the sole source for public display of quality reporting. The commenters recommended Hospital Compare be the sole Web site for display of quality data and supported continued improvement in the Hospital Compare Web site to make its data comprehensive and meaningful to consumers.

Response: We believe that Hospital Compare should be the primary vehicle for displaying hospital quality data reported for the Hospital IQR Program. As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185), the data we display on Web sites other than Hospital Compare is displayed on a temporary basis because of pending display design and other unresolved issues so as to not confuse beneficiaries who intend to use data in making healthcare decisions. Once an appropriate display mechanism has been determined, the information is added to the Hospital Compare Web site.

Comment: One commenter noted that results displayed on Hospital Compare should always exclude results based on a small number of cases or those results that may be misinterpreted by consumers.

Response: Currently, hospital-level process of care measures based on fewer than 25 cases are displayed with a footnote indicating that the number of cases may be too few for meaningful comparisons to be made. Hospital-level risk-adjusted outcome measure rates based on fewer than 25 cases are not displayed at all. This minimum case threshold may be subject to change in the future to match the minimum case threshold for the various measures established for the Hospital VBP Program. We thank the commenter for this suggestion.

Comment: One commenter suggested the standalone display of the PSI-12 Post-operative PE and DVT measure due to its significance as an indicator of hospital quality for Medicare beneficiaries undergoing surgeries that may put them at risk for thromboembolism.

Response: We appreciate this comment. We have not finalized the display options for the AHRQ PSI and IQI composite measures, in which PSI-12 is included. We will take this suggestion into consideration for the display of the AHRQ measures.

Comment: One commenter suggested that public reporting should be presented in different formats to meet the needs of consumers, healthcare providers and researchers.

Response: We are exploring options as to how best meet the needs of our multiple stakeholders, including beneficiaries and researchers. A new Web site, http://www.data.medicare.gov, allows researchers and other interested parties to view and manipulate multiple data sources, including downloadable databases from hospitals, nursing homes and dialysis facilities.

Comment: One commenter asked whether the data displayed on Hospital Compare included data from Medicare Advantage affiliated hospitals.

Response: Section 1886(b)(3)(B)(viii)(VII) of the Act requires that the Secretary establish procedures for making information regarding measures submitted under the Hospital IQR Program available to the public. The Hospital IQR Program applies to subsection (d) hospitals, many of which treat beneficiaries enrolled in Medicare Advantage (MA) plans. With respect to the process of care measures, the data are collected, and subsequently displayed, on all patients, including these MA beneficiaries. However, the claims-based measures are currently calculated using only Medicare Part A fee for service claims and do not, for that reason, capture MA beneficiary data. In the future, we hope to collect outcome measure data on all patients.

After consideration of the public comments we received, we are finalizing our proposal to display information regarding the measures (such as names of measures for which data will be displayed in the future) on the Hospital Compare Web site.

2. Retirement of Hospital IQR Program Measures
a. Considerations in Retiring Quality Measures From the Hospital IQR Program

We generally retain measures from the previous year's Hospital IQR Program measure set for subsequent years' measure sets. We previously retired one “topped out” measure, PN-1: Oxygenation Assessment for Pneumonia, from the Hospital IQR Program on the basis of high unvarying performance among hospitals, because measures with very high performance among hospitals present little opportunity for improvement, and do not provide meaningful distinctions in performance for consumers.

We also have retired one measure from the Hospital IQR Program because it no longer “represent[ed] the best clinical practice,” as required under section 1886(b)(3)(B)(viii)(VI) of the Act. We stated that when there is reason to believe that the continued collection of a measure as it is currently specified raises potential patient safety concerns, it is appropriate for CMS to take immediate action to remove a measure from the Hospital IQR Program and not wait for the annual rulemaking cycle. Therefore, we adopted the policy (74 FR 43864 and 43865) that we would promptly retire such a measure, confirmthe retirement in the next IPPS rulemaking cycle, and notify hospitals and the public of the decision to promptly retire measures through the usual hospital and QIO communication channels used for the Hospital IQR Program. These channels include memos, e-mail notification, and QualityNet Web site postings.

As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185), among the criteria that we consider when determining whether to retire Hospital IQR Program measures are the following: (1) Measure performance among hospitals is so high and unvarying that meaningful distinctions and improvements in performance can no longer be made; (2) performance or improvement on a measure does not result in better patient outcomes; (3) a measure does not align with current clinical guidelines or practice; (4) the availability of a more broadly applicable (across settings, populations, or conditions) measure for the topic; (5) the availability of a measure that is more proximal in time to desired patient outcomes for the particular topic; (6) the availability of a measure that is more strongly associated with desired patient outcomes for the particular topic; (7) collection or public reporting of a measure leads to negative unintended consequences other than patient harm. These criteria were suggested by commenters during rulemaking, and we agreed that these criteria should be among those considered in evaluating Hospital IQR Program measures for retirement.

b. Retirement of Hospital IQR Program Measures for the FY 2014 Payment Determination and Subsequent Years

In order to reduce the reporting burden on hospitals, and in particular, the burden associated with reporting chart-abstracted measures, we have considered options to accommodate the expansion of the measure set through the retirement of additional Hospital IQR measures. Specifically, we have considered retiring one or more of the measures suggested by various commenters that were listed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43865). We noted in that final rule that commenters recommended for retirement 11 Hospital IQR Program chart-abstracted measures. Seven of these 11 measures were recommended by commenters for retirement based on their performance being uniformly high nationwide, with little variability among hospitals (topped-out measures). Based on our own analysis, we concluded that these measures are topped out and for this reason, we proposed not to include them in the FY 2013 Hospital VBP Program measure set (76 FR 2460). These measures are listed below:

  • AMI-1 Aspirin at arrival
  • AMI-3 ACEI/ARB for left ventricular systolic dysfunction
  • AMI-4 Adult smoking cessation advice/counseling
  • AMI-5 Beta-blocker prescribed at discharge
  • HF-4 Adult smoking cessation advice/counseling
  • PN-4 Adult smoking cessation advice/counseling
  • SCIP INF-6 Appropriate Hair Removal

The methodology we used to determine that these measures are topped out is detailed in the Hospital VBP Program proposed rule (76 FR 2460). In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25892), we proposed to retire these topped out measures from the Hospital IQR measure set. In addition, we proposed to not include an eighth measure in the FY 2013 Hospital VBP Program measure set because we believe that inclusion of this measure would result in the unintended consequence of inappropriate antibiotic use (76 FR 2462). This measure is PN-5c Timing of receipt of initial antibiotic following hospital arrival. In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25892), we also proposed to retire this measure from the Hospital IQR Program because of the potential for this negative unintended consequence.

For these reasons, we proposed to retire these eight measures from the Hospital IQR measure set for FY 2014 and subsequent years, and that hospitals would no longer be required to submit data on these measures starting with January 1, 2012 discharges. We invited public comment on this proposal.

Comment: Several commenters supported the CMS measure retirement criteria and the proposed retirement of the 8 proposed topped out measures to reduce burden. The commenters encouraged CMS to replace process measures with comparable outcome measures whenever possible.

Response: We thank the commenters for their support and agree with the suggestion that, when possible, process measures should be replaced by suitable outcome measures.

Comment: A few commenters suggested that CMS should proceed cautiously in its decisions whether to retire topped-out measures or measures no long supported by scientific evidence. Some commenters recommended the continuation of data collection for topped out measures because they were concerned that there may be unintended consequences, such as a deterioration of the standard of care, if data collection and monitoring are discontinued.

Response: We believe it is appropriate to retire measures based on our measure retirement criteria. Retirement using these criteria also meets our goals of minimizing the reporting burden, and staying current with the latest scientific evidence. Furthermore, we believe that in many cases, the proposed topped out measures have been integrated into standard hospital clinical practices and for this reason, we believe it is unlikely that the types of beneficiary care addressed by these measures would deteriorate as a result of their retirement from the Hospital IQR Program measure set. However, as explained below, we have decided not to retire four of the eight measures we proposed to retire. Instead, we will retain these measures in the Hospital IQR Program but suspend data collection on them. We believe this will address the commenters' concern that we proceed cautiously when deciding whether to retire measures.

Comment: A few commenters opposed the retirement of the quality measures that have been deemed clinically meaningful or that were part of long-standing measure sets. A commenter suggested that CMS consider including topped out measures in composite measures. Commenters were concerned that the retirement of these measures may disrupt quality improvement efforts in hospitals. A commenter noted that quality measurement in general has the optimal impact on quality of care and patient outcomes when multiple related metrics are used. Another commenter believed that topped out measures that are NQF-endorsed should stay in the Hospital IQR Program until the NQF has retired them.

Response: While we are dedicated to the care and safety of our beneficiaries, we are also concerned with the burden placed on hospitals in order to collect data for the Hospital IQR Program. We do not believe we should continue collecting measures simply because they are part of a long standing measure set or that it would be generally meaningful to combine topped out measures into a composite topped out measure. Our decision to retire a measure from the Hospital IQR Program would not preclude a hospital from continuing to improve its own performance on the measure. Moreover, as discussed below, we are keeping four of the measures we proposed for retirement in the Hospital IQR Program, but are suspending the data submission requirements for thesemeasures. This approach will reduce data collection burdens on hospitals, but will enable us to resume data collection should we observe abrupt declines in adherence to these measures.

Comment: A few commenters supported the retirement of AMI-4, HF-4, and PN-4 because they are topped out. A few commenters stated that these 3 measures and the PN-5c measure do not meet the The Joint Commission accountability measure criteria and should be retired. Another commenter requested clarification on the reason for retiring PN-5c since this measure has been a high priority in hospitals which have geared up training efforts for this measure.

Response: We thank the commenters for supporting our proposal to retire these four measures, and we are finalizing our proposal to retire these measures beginning with January 1, 2012 discharges. The three adult smoking cessation counseling measures (AMI-4, HF-4, and PN-4) are no longer NQF-endorsed. They are also topped out, which provides us with some assurance that these processes have been incorporated into routine hospital care. With respect to the PN-5c measure, we believe that the continued collection of this measure might lead to the unintended consequence of antibiotic overuse, which is a practice that could negatively affect beneficiary health and one that should not be incentivized through the Hospital IQR Program. Should we decide in the future that the clinical evidence supports the re-adoption of one or more of these measures into the Hospital IQR Program measure set, we will propose to re-adopt the measure(s) in rulemaking.

Comment: One commenter suggested that CMS establish policies to retire a quality measure midyear if the measure is found to have unintended serious consequences.

Response: We appreciate this suggestion. Our current policy is to immediately suspend collection of a measure when there is reason to believe that continued collection of the measure raises patient safety concerns. In these circumstances, we will take action outside of the rulemaking cycle, and then confirm the retirement in the next IPPS rulemaking cycle. We will also disseminate this information to hospitals and the public through the usual hospital and QIO communication channels used for the Hospital IQR Program, including the QualityNet Web site, e-mail blasts, memos and other information postings as needed.

Comment: One commenter recommended that the following four measures also be considered for retirement: HF-1 (because it is a “check the box” measure and is not related to the quality of the discharge process), SCIP-Inf-2 (because it is a process measure which can be replaced by its outcome measure which is the Surgical Site Infection measure scheduled for implementation for FY 2014), SCIP-INF-VTE-1 and SCIP-VTE-2 (because these 2 proposed VTE measures are already included in the VTE measure set for FY 2015) and PN-3b (because of the incompatible EHR integration with the clinical workflow).

Response: We thank the commenter for these recommendations and will evaluate them in our measure review for future rulemaking.

Comment: Many commenters agreed that the retirement of all eight measures would result in a reduction in chart abstraction burden for hospitals. However, a few commenters were particularly concerned about retiring AMI-1, AMI-3, AMI-5, and SCIP Infection-6 because they have been designated as accountability measures by The Joint Commission. (5) The commenters agreed that these measures should not be used in the Hospital VBP Program but urged CMS to keep these measures in the Hospital IQR Program and continue their display on Hospital Compare in order to prevent a decline in adherence to the important care processes assessed by these measures that are clinically associated with better outcomes. Commenters supported the cessation of data collection for these measures that we proposed for retirement (AMI-1, AMI-3, AMI-5, and SCIP INF-6) in order to ease the data collection burden.

Response: We have been persuaded by these commenters that it might be premature to retire these measures (AMI-1, AMI-3, AMI-5 and SCIP INF-6) from the Hospital IQR Program. As the commenters pointed out, these measures, unlike the other four measures we proposed to retire, have been defined by The Joint Commission as measures of accountability. In addition, these measures, unlike three of the other four measures, are currently still endorsed by the NQF.

We are sensitive, however, to comments noting how the continued adoption of chart-abstraction measures over time has increased the burden to hospitals. Therefore, in an effort to balance our goal to incentivize high quality care with the goal to work where possible to minimize the data collection burden for hospitals, we have decided to retain these measures in the Hospital IQR Program but to suspend data collection on them until such time that the evidence shows that hospital adherence to these practices has unacceptably declined. In these circumstances, we would resume data collection using the same form and manner and on the same quarterly schedule that we finalized for these and other chart abstracted measures for the applicable period of collection, providing at least 3 months of notice prior to resuming data collection. Hospitals would be notified of this via CMS listservs, CMS e-mail blasts, national provider calls, and QualityNet announcements. In addition, we would comply with any requirements imposed by the Paperwork Reduction Act before resuming data collection of these 4 measures.

In summary, based upon the public comments we received, we are retiring the following four measures beginning with January 1, 2012 discharges:

  • AMI-4 Adult smoking cessation advice/counseling
  • HF-4 Adult smoking cessation advice/counseling
  • PN-4 Adult smoking cessation advice/counseling
  • PN-5c Timing of receipt of initial antibiotic following hospital arrival

We are suspending data collection for the following four measures beginning with January 1, 2012 discharges:

  • AMI-1 Aspirin at arrival
  • AMI-3 ACEI/ARB for left ventricular systolic dysfunction
  • AMI-5 Beta-blocker prescribed at discharge
  • SCIP INF-6 Appropriate Hair Removal
3. Measures for the FY 2014 and FY 2015 Hospital IQR Payment Determinations
a. Considerations in Expanding and Updating Quality Measures Under the Hospital IQR Program

In general, we seek to adopt measures for the Hospital IQR Program that promote better, safer, more efficient care. Our measure development and selection activities for the Hospital IQR Program take into account national priorities, such as those established by the National Priorities Partnership, HHS Strategic Plan, the National Strategy for Quality Improvement in Healthcare, as well as other widely accepted criteria established in medical literature. (We refer readers to the following Web sites regarding these priorities: http:// (National Priorities Partnership); http://www.hhs.gov/secretary/about/priorities/priorities.html (HHS Strategic Plan); and http://www.healthcare.gov/center/reports/quality03212011a.html (National Strategy for Quality Improvement in Healthcare)). To the extent practicable, we have sought to adopt measures which have been endorsed by a national consensus organization, recommended by multi-stakeholder organizations, and developed with the input of providers, purchasers/payers and other stakeholders. Because measures for the Hospital VBP Program must be selected from the measures specified for the Hospital IQR Program, the measures to be selected for inclusion in the Hospital VBP Program also reflect these priorities. In addition, we believe it is important to expand the pool of measures to include measures that are directed toward improving patient safety. This goal is supported by at least two Federal reports documenting that tens of thousands of patients do not receive safe care in the nation's hospitals. (6) (7)

Section 3001(a)(2) of the Affordable Care Act amended the Act by adding a new section 1886(b)(3)(B)(viii)(VIII) of the Act. This section states that, “[e]ffective for payments beginning with fiscal year 2013, with respect to quality measures for outcomes of care, the Secretary shall provide for such risk adjustment as the Secretary determines to be appropriate to maintain incentives for hospitals to treat patients with severe illnesses or conditions.” Section 3001(a)(2) of the Affordable Care Act also added new sections 1886(b)(3)(B)(viii)(IX)(aa) and (bb) of the Act. These sections state that “* * * effective for payments beginning with fiscal year 2013, each measure specified by the Secretary under this clause shall be endorsed by the entity with a contract under section 1890(a) [of the Act],” and “[i]n the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical has not been endorsed by the entity with a contract under section 1890(a) [of the Act], the Secretary may specify a measure that is not so endorsed as long as due consideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary.” In the FY 2011 IPPS/LTCH PPS final rule, we established that all of the measures adopted in that rule for the FY 2013 and FY 2014 payment determinations meet these standards (75 FR 50200).

We have previously acknowledged the data collection burden for hospitals participating in the Hospital IQR Program, and reiterated our desire to expand the Hospital IQR Program measure set while minimizing burden and seeking to provide alternative mechanisms for data submission (75 FR 50189). We also stated that in future expansions and updates to the Hospital IQR Program measure set, we would be taking into consideration several important goals. These goals include: (a) Expanding the types of measures beyond process of care measures to include an increased number of outcome measures, efficiency measures, and patients' experience of care measures; (b) expanding the scope of hospital services to which the measures apply; (c) considering the burden on hospitals in collecting chart-abstracted data; (d) harmonizing the measures used in the Hospital IQR Program with other CMS quality programs to align incentives and promote coordinated efforts to improve quality; (e) seeking to use measures based on alternative sources of data that do not require chart abstraction or that utilize data already being reported by many hospitals, such as data that hospitals report to clinical data registries, or all-payer claims databases; and, (f) weighing the relevance and utility of the measures compared to the burden on hospitals in submitting data under the Hospital IQR Program.

Specifically, we give priority to measures that assess performance on: (a) Conditions that result in the greatest mortality and morbidity in the Medicare population; (b) conditions that are high volume and high cost for the Medicare program; and, (c) conditions for which wide cost and treatment variations have been reported, despite established clinical guidelines. We have used and continue to use these criteria to guide our decisions regarding what measures to add to the Hospital IQR Program measure set. In addition, in selecting measures, we seek to address the six quality aims of effective, safe, timely, efficient, patient-centered, and equitable healthcare. Current and long term priority topics include: prevention and population health; safety; chronic conditions; high cost and high volume conditions; elimination of health disparities; HAIs and other adverse healthcare outcomes; improved care coordination; improved efficiency; improved patient and family experience of care; effective management of acute and chronic episodes of care; reduced unwarranted geographic variation in quality and efficiency; and adoption and use of interoperable HIT.

Hospital IQR Program measures were initially based solely on a hospital's submission of chart-abstracted quality measure data. However, in recent years we have adopted measures that do not require chart abstraction, including structural measures and claims-based measures that we can calculate using other data sources. This approach supports our goal of expanding the measures for the Hospital IQR Program while minimizing the burden on hospitals and, in particular, without significantly increasing the chart abstraction burden.

In addition to structural measures and claims-based measures, we previously noted that registries are potential alternative sources of hospital data for the Hospital IQR Program. (A registry is a collection of clinical data for purposes of assessing clinical performance, quality of care, and opportunities for quality improvement.) We envisioned that instead of requiring hospitals to submit the same data to CMS that many hospitals are already submitting to registries, we would collect the data directly from the registries. This could enable the expansion of the Hospital IQR Program measure set without increasing the burden of data collection for those hospitals participating in the registries. We have previously adopted structural measures of registry participation, and we continue to evaluate the feasibility of leveraging registry-based data collection mechanisms for the Hospital IQR Program.

We also stated our intention to explore mechanisms for data submission using electronic health records (EHRs) (73 FR 48614; 74 FR 43866, 43892; and 75 FR 50189). Establishing such a system will require interoperability between EHRs and CMS data collection systems, additional infrastructure development on the part of hospitals and CMS, and the adoption of standards for capturing, formatting, and transmitting the data elements that make up the measures. However, once these activities are accomplished, the adoption of measures that rely on data obtained directly from EHRs will enable us to expand the Hospital IQR Program measure set with less cost and burdento hospitals. We believe that automatic collection and reporting of data through EHRs will greatly simplify and streamline reporting for various CMS quality reporting programs and that at a future date, currently targeted to be FY 2015, hospitals will be able to switch solely to EHR-based reporting of data that are currently manually chart-abstracted and submitted to CMS for the Hospital IQR Program.

We reiterate our commitment to pursue our goals to expand and update quality measures under the Hospital IQR Program and also to minimize burden. We note that in addition to the input we described above, we take into consideration the measures adopted by the Hospital Quality Alliance (HQA) as well as an array of input from the public. The HQA is a national public-private collaboration that is committed to making meaningful, relevant, and easily understood information about hospital performance accessible to the public and to informing and encouraging efforts to improve quality. We appreciate HQA's integral efforts to improve hospital quality of care and its support of our public quality reporting programs.

In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50191 through 502192), we finalized our proposal to adopt measures for the Hospital IQR Program for three consecutive payment determinations. The intent of this policy was to provide greater certainty for hospitals to plan to meet future reporting requirements and implement related quality improvement efforts. In addition to giving hospitals more advance notice in planning quality reporting, this 3-year approach also provides more time for us to prepare, organize and implement the infrastructure needed to collect data on the measures and make payment determinations. We indicated, however, that these preliminary measure sets could still be updated through the rulemaking process should we need to respond to agency and/or legislative changes.

Finally, in section IV.A.5.a.(2) of the FY 2011 IPPS/LTCH PPS final rule (75 FR 50219 through 50220), we adopted a proposal to make Hospital IQR Program payment determinations beginning with FY 2013 using one calendar year of data for chart-abstracted measures. We will use this approach, which synchronizes the quarters for which data on these measures must be submitted during each year with the quarters used to make payment determinations with respect to a fiscal year beginning with January 1, 2011 discharges. However, it will not affect our payment determinations until FY 2013.

Section 1886(o)(2)(A) of the Act requires the Secretary to select measures, other than readmission measures, for the Hospital VBP Program from the measures specified under the Hospital IQR Program. Section 1886(o)(2)(B)(i)(I) of the Act states that, for FY 2013, the selected measures must cover at least the following five specified conditions or procedures: Acute myocardial infarction (AMI), Heart failure (HF), Pneumonia (PN), Surgeries, as measured by the Surgical Care Improvement Project (SCIP), and HAIs, as measured by the prevention metrics and targets established in the HHS Action Plan to Prevent Healthcare-Associated Infections [HAIs] (or any successor HHS plan). Section 1886(o)(2)(B)(i)(II) of the Act provides that, for FY 2013, measures selected for the Hospital VBP Program must also be related to the Hospital Consumer Assessment of Healthcare Providers and Systems survey (HCAHPS).

In selecting measures for the Hospital IQR Program, we are mindful of the conceptual framework of the Hospital VBP Program. We will focus on selecting measures that we believe will also meet the Hospital VBP Program measure inclusion criteria and advance the goals of the Hospital VBP Program by targeting hospitals' ability to improve patient care and patient outcomes.

In addition, in order to support HHS priorities such as patient safety, reduction of HAIs, and readmissions, and to meet more of the widespread goals of the Affordable Care Act in terms of improving the quality of care provided to Medicare beneficiaries, in the FY 2012 IPPS/LTCH PPS proposed rule we proposed to adopt measures for the FY 2014 and FY 2015 Hospital IQR payment determinations. However, we noted that the final measure sets to be used for these years' payment determinations could be changed via future rulemaking. This allows us the flexibility to accommodate changes in program needs and legislative changes. We invited public comment on these proposals.

Comment: Some commenters were pleased to see CMS's move to align measures used for various Medicare programs in order to reduce the reporting burden. Some commenters supported the alignment of all new measures with the objectives of the National Priorities Partnership, the HHS Strategic Plan, and the National Strategy for Quality Improvement in Healthcare, while other commenters recommended aligning reporting approaches across payers to reduce the burden of quality reporting and to also allow for meaningful comparisons across payers.

Response: We appreciate the commenters' support of our ongoing alignment strategy. We may consider an approach to align measures across payers in the future.

Comment: Many commenters strongly opposed the adoption of additional chart-abstracted measures because they believed these measures would increase hospital burden. One commenter urged CMS to limit its adoption of new chart-abstracted measures to a maximum of three per payment determination. Some commenters recommended that CMS either: stop adopting additional new chart-abstracted measures altogether; propose to adopt new chart-abstracted measures only if it simultaneously proposes to retire the same number of measures; or retire chart-abstracted measures when related outcome measures could instead be used.

A commenter suggested that CMS should monitor whether the adoption of new measures for the Hospital IQR Program would create redundancy in terms of what data is being collected. This commenter cited the following measures and measure topics included in the table of measures and topics under consideration for future implementation (76 FR 25899 through 25901) which was included the FY 2012 IPPS/LTCH PPS proposed rule as examples of potentially duplicative measures: Timing of Antibiotic Prophylaxis; Selection of Antibiotic Prophylaxis; Pre-Operative Beta Blockade; and Duration of Prophylaxis.

A few commenters cited several other examples of measures that they believed are already duplicative. Specifically, these commenters believed that the 30-day mortality rate and 30-day readmission rate measures for AMI, HF, and PN were duplicative of the 9 chart-abstracted process measures currently included in the Hospital IQR measure set for these 3 conditions, and that for this reason, the chart-abstracted measures could be retired. Commenters further noted that the periodic evaluation of measures for redundancy would significantly reduce the administrative burden for hospitals while maintaining incentive for hospitals to focus on their quality improvement efforts.

Commenters also suggested that the HAC measure (Vascular Catheter-Associated Infections) is so similar to the CLABSI measure that it is redundant for CMS to include both of these measures in the Hospital IQR Program measure set. These commenters believed that it is unnecessary and potentially confusing and inefficient tocollect data on these two measures simultaneously.

Response: We agree that chart-abstracted measures are burdensome for hospitals to collect. As soon as we can obtain quality data from EHRs, we intend to limit the adoption of chart-abstracted measures for future payment determinations. To ease the burden before then, we are finalizing our proposal to retire four chart-abstracted measures beginning with January 1, 2012 discharges. Additionally, we are finalizing a policy in this final rule under which the collection of data on four chart-abstracted measures will be suspended until such time that the clinical evidence indicates that hospital adherence to these practices has unacceptably declined. We also continuously seek to harmonize and align measure specifications where applicable in an effort to reduce the incidence of duplicative measures both within and across programs. We also seek to reduce redundancy in measurement. We will carefully consider whether the measures cited by commenters significantly overlap with each other and, for that reason, whether some of the measures cited should be retired.

Comment: One commenter suggested that for initial transition into EHR reporting, CMS should limit the number of electronic measures that could be collected via EHR technology.

Response: We are mindful of the potential challenges that could be faced by hospitals during a transition to EHR-based reporting. We will keep these challenges in mind as we develop our proposals for adopting measures that can be reported through EHRs.

Comment: In response to our projected timeframe for transitioning to EHR-based data collection, a commenter noted that given the slow progress of EHR software development, it was premature to anticipate that Hospital IQR Program measures could be collected via EHRs by 2015.

Response: We believe FY 2015 is a reasonable transition date for switching from chart-abstracted measures to EHR-based reporting for the Hospital IQR Program because that is the year when certain hospitals will become subject to payment adjustments if they do not demonstrate meaningful use of certified EHR technology. For this reason, we believe that these hospitals will be EHR-technology-ready by FY 2015.

Comment: A few commenters supported using registries and the EHR reporting mechanism to ease burden and to obtain robust clinical data. Some commenters believed that registries assist hospitals in managing specific patient populations more effectively. A commenter noted that reporting to a registry is not the long term solution to advance the reporting of the increasingly complex quality data, but could be an interim solution. A few commenters opposed using registries and believed that registry-based measures would create an extra burden for hospitals. These commenters explained that many registries require data collection from the medical record only, whereas other registries require the collection and submission of a significant number of data elements. Another commenter noted that registry-based reporting would not be meaningful when EHR-based reporting becomes more common in FY 2015.

Response: We believe that registries, in general, hold promise for less burdensome quality reporting, and that is why we adopted several structural measures that monitor participation in systematic clinical database registries for the Hospital IQR Program. We agree that registry requirements may vary. We also agree that registries could serve as an interim solution until we implement wide-spread EHR-based reporting for the Hospital IQR Program.

Comment: Some commenters encouraged CMS to consistently evaluate the relevancy and need to modify quality measures in its quality reporting expansion efforts, for small rural hospitals with limited resources.

Response: We thank the commenter for this suggestion. In general, we seek to adopt measures that are broadly applicable to all hospitals, including small rural hospitals. However, we are mindful of the challenges faced by small rural hospitals with limited resources.

In summary, we will continue to pursue goals regarding the expansion and updating of quality measures under the Hospital IQR Program while minimizing burden. We will take into account the public comments we received on this issue, including the possible uses of EHRs and registries in the Hospital IQR Program. We also note that in accordance with the policy we are finalizing in this final rule to suspend data collection on four measures (AMI-1, AMI-3, AMI-5, and SCIP-6), the measure set for FY 2014 and/or FY 2015 that we finalize in this final rule might change if we resume the collection of data on one or more of these measures.

b. Hospital IQR Program Measures for the FY 2014 Hospital IQR Payment Determination
(1) Retention of 56 Hospital IQR Program Measures Finalized in the FY 2011 IPPS/LTCH PPS Final Rule for the FY 2014 Payment Determination

We previously finalized 60 measures for the FY 2014 Hospital IQR Program measure set. In general, we retain measures used in prior payment determinations for subsequent payment determinations unless otherwise stated. However, as we discussed above, in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25892), we proposed to retire 8 measures from the FY 2014 measure set and to retain the remaining 52 of the 60 quality measures finalized in the FY 2011 IPPS/LTCH PPS final rule for the FY 2014 payment determination. We invited public comment on our proposal to retain these 52 measures for the FY 2014 payment determination. We note that in this final rule we are finalizing a policy under which we will retain four of the eight measures we proposed to retire and will retain but suspend data collection for the other four measures.

Comment: One commenter was concerned about the burden of chart-abstraction of two Hospital IQR measures: ED-1: Median time from emergency department arrival to time of departure from the emergency room for patients admitted to the hospital; and ED-2: Median time from admit decision to time of departure from the emergency department for emergency department patients admitted to the inpatient status. To reduce the chart-abstraction burden for these measures, the commenter suggested that patients with principal diagnosis codes unrelated to the cause for the ED visit be excluded from the denominator.

Response: We share the commenter's concern regarding the burden hospitals face to collect data on Hospital IQR measures. We acknowledge that patients seek medical attention in the hospital ED for a variety of reasons, some of which may not appear to be linked with a discharge diagnosis. We will consider whether it is appropriate to modify the ED throughput measures to exclude patients with a principal diagnosis code seemingly unrelated to the cause for the ED visit in the denominator. In such case, we will seek an NQF ad hoc review to have the new specifications endorsed. However, we believe that all patients, regardless of chief complaint or discharge diagnosis, should have access to timely and efficient care.

Comment: One commenter recommended that for the Surgical Site Infection (SSI) measure that wasfinalized in the FY 2011 IPPS/LTCH final rule for the FY 2014 payment determination, CMS should limit the surgical procedures to not more than two and increase the number of surgical procedures gradually in the future.

Response: We thank the commenter for the suggestion. In the measure Specifications Manual, there are currently 395 SCIP procedures summed up into 6 stratifications: cardiac surgery, other cardiac surgery, hip arthroplasty, colon surgery, hysterectomy and vascular surgery. We are working with CDC on the collection of the Surgical Site Infection data. The data collection is consistent with the specifications, and as recommended by the CDC, we will be collecting data on 2 surgical procedure categories. This will not only reduce burden, but will allow the CDC to collect data in a phased roll out. Consistent with current NQF harmonization efforts underway for this measure, and based on recommendations by CDC, we will be collecting Surgical Site Infection data only for colon and abdominal hysterectomy procedures via NHSN for the FY 2014 payment determination.

Comment: A commenter stated that current mortality and readmissions outcome measures in the Hospital IQR Program pose challenges for hospitals. Other commenters stated that the hierarchical regression model on which these measures are based includes a risk-adjustment methodology that hospitals cannot replicate or validate. These commenters believed that this hampered hospitals from generating internal reports to assess performance and that hospitals have to wait for CMS to provide the information annually.

Response: Although it provides some challenges to hospitals, we believe that there are several reasons supporting our conclusion that hierarchical modeling, which is NQF-endorsed, is the appropriate statistical approach for calculating the hospital outcome measures: 30-day risk-adjusted all-cause readmission and mortality measures. This conclusion is based on the structure of the data and the underlying assumption that hospital quality of care influences 30-day mortality/readmission rates. First, patients are clustered within hospitals and, therefore, have a shared exposure to the hospital quality and processes. The use of hierarchical modeling accounts for the clustering of patients within hospitals. Second, hierarchical models distinguish within-hospital variation and between-hospital variation to estimate the hospital's contribution to the risk of mortality or readmission. This allows for an estimation of the hospital's influence on patient outcomes. Finally, within hierarchical models we can account for both differences in case mix and sample size to fairly profile hospital performance. If we did not use hierarchical modeling we could overestimate variation and potentially misclassify hospitals' performance.

This approach to calculating the numerator, therefore, although more complex than that used for logistic regression, is more statistically accurate and fairer to hospitals. We agree that hospitals currently cannot replicate the RSMRs or RSRRs independently. Although hospitals have access to the inclusion/exclusion criteria and risk-adjustment coefficients used; the model requires the input of patient longitudinal data across care settings and data from the entire national sample to estimate the hospital-specific effects used in the calculations. We will consider whether it is operationally possible to provide these data to hospitals and whether sharing these data would be consistent with patient privacy considerations.

Comment: A few commenters opposed the retention of the HAC measure: Manifestations of Poor Glycemic Control and the two Global Immunization measures (Immunization for Influenza and Immunization for Pneumonia) because they believed that these measures are more appropriate to collect at the physician level.

Response: We disagree with the commenters' belief that the measures are better suited for the physician office. The HAC measure, manifestation of poor glycemic control, has ICD-9 codes that are specific to a secondary diagnosis in the hospital, not to ambulatory settings. Certain acute illnesses and procedures, such as influenza or surgery, can cause blood glucose to become uncontrolled in some patients. In these instances, a patient may react to high or low blood sugar with adverse events such as coma, or a secondary illness or infection. In response to the comments on the two Global Immunization measures, we believe that the acute care setting offers a unique opportunity to assess a patient's immunization status and offer a service they may not otherwise receive.

Comment: A commenter stated that the current AMI and HF measures adopted for the FY 2014 payment determination are not well-aligned with current evidence and treatment guidelines for AMI or HF that are reflected in the current performance measures developed by the American Heart Association/American College of Cardiology/Physician Consortium for Performance Improvement. The commenter also stated that the HF-1 discharge instruction measure does not have a valid process outcome link.

Response: We are interested in the heart failure measure set referenced by the commenter, and we included these measures in our list of measures under future consideration for this program. However, the AMI and HF measures proposed for retention in the Hospital IQR measure set were developed using the most up to date clinical evidence. The CMS TEP convened as part of our measure maintenance work for these measures includes members and guideline authors from both the American Heart Association and the American College of Cardiology. We look to TEPs to inform us of vital changes to the guidelines, assuring our measures are scientifically credible. We believe that the processes assessed by the HF-1 measure, which assesses whether discharge instructions for heart failure patients were issued, are vital in assuring that patients are appropriately informed of activities and behaviors that promote health and positive outcomes.

Comment: A commenter recommended that CMS separate the IQI-11 Abdominal aortic aneurysm (AAA) mortality rate (with or without volume) measure into two distinct measures: one measure for those patients undergoing elective repair and one measure for those undergoing emergency or urgent repair. The commenter believed that this measure should be stratified by open surgical and endovascular repair, and that the risk-adjustment model should be tested prospectively for accuracy.

Response: We thank the commenter for this suggestion. AAA repair is a technically difficult procedure with a relatively high mortality rate (we refer readers to http://www.qualityindicators.ahrq.gov/modules/iqi_resources.aspx). We have adopted the measure as it is currently specified by the Agency for Healthcare Research and Quality, and endorsed by the NQF which includes both elective and emergent cases and is not stratified. We believe that the measure is appropriately risk-adjusted to account for differences in risk factors in the elective and emergent populations undergoing this procedure.

After consideration of the public comments we received, we are finalizing the retention of 56 measures that we finalized in the FY 2011 IPPS/LTCH PPS final rule for the FY 2014 payment determination. We note that this number includes the four measures which, as discussed above, we are alsoretaining but on which we are suspending data collection.

(2) Additional Hospital IQR Program Measures for the FY 2014 Payment Determination
(A) CDC/NHSN-Based Healthcare-Associated Infection (HAI) Measures

HAIs are among the leading causes of death in the U.S. CDC estimates that as many as 2 million infections are acquired each year in hospitals and result in approximately 90,000 deaths per year. (8) It is estimated that more Americans die each year from HAIs than from auto accidents and homicides combined. HAIs not only put the patient at risk, but also increase the days of hospitalization required for patients and add considerable healthcare costs.

HAIs are largely preventable with widely publicized interventions such as better hygiene and advanced scientifically tested techniques for surgical patients. Therefore, the public reporting of HAIs has been of great interest to many healthcare consumers and advocacy organizations because it promotes awareness and permits health care consumers to choose the hospitals with lower HAI rates, as well as gives hospitals an incentive to improve infection control efforts. To maximize the efficiency and improve the coordination of HAI prevention efforts across the Department, HHS established in 2008 a senior-level Steering Committee for the Prevention of Healthcare-Associated Infections. In 2009, the Steering Committee, along with scientists and program officials across the government, developed the HHS Action Plan to Prevent HAIs providing a roadmap for HAI prevention in acute care hospitals. In the first iteration of the Action Plan, the Steering Committee chose to focus on infections in acute care hospitals because the associated morbidity and mortality was most severe in that setting and the scientific information on prevention and the capacity to measure improvement was most complete. Thus, prevention of HAIs in acute care hospitals became the first phase of the Action Plan and it focuses on six high priority HAI-related areas.

In addition, the Steering Committee included in the Action Plan five-year goals for nine specific measures of improvement tied to the six HAI prevention priority areas. Since the release of the first Action Plan in June 2009, the Steering Committee has been developing a successor plan in collaboration with public and private partners which is expected to incorporate advances in science and technology and expand the scope to the outpatient environment. The successor plan is also expected to address the health and safety of healthcare personnel, as well as the risks of influenza transmission from healthcare personnel to patients. The second Action Plan is due for publication in 2011.

We also note that the House Committee on Appropriations asked in a 2009 Report that CMS include in its “pay for reporting” system two infection control measures developed by the Hospital Quality Alliance (HQA)—Central line-associated bloodstream infections and a surgical site infection rate (H. Rep. No. 111-220, at 159 (2009)). In the report, the Committee stated that “if the measures are included in Hospital Compare, the public reporting of the data is likely to reduce HAI occurrence, an outcome demonstrated in previous research.”

In the FY 2011 IPPS/LTCH PPS final rule, we adopted the two HAI measures identified by the House Committee on Appropriations in its 2009 report: Central Line [catheter] Associated Blood Stream Infection (CLABSI) measure, and Surgical Site Infection (SSI) measure. The CLABSI measure is currently being collected as part of the FY 2013 Hospital IQR measure set, and data submission on the measure began with January 2011 events. (9) The Surgical Site Infection (SSI) measure is currently part of the FY 2014 Hospital IQR measure set, and data submission on the measure will begin with January 2012 events.

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25894 through 25896), we proposed to adopt two additional HAI measures for the FY 2014 Hospital IQR measure set. These measures are: (1) Central Line Insertion Practices, or CLIP (which is NQF # 298 and operationalized by the CDC for collection through the NHSN); and (2) Catheter Associated Urinary Tract Infection (CAUTI) (NQF # 138). Both measures are high priority HAI measures that are included among the prevention metrics established in the HHS Action Plan To Prevent HAIs which, as we noted above, underscores the importance of reducing HAIs. As detailed below, both measures also meet Hospital IQR Program statutory requirements for measure selection.

Furthermore, both measures are currently collected by the NHSN, which is a secure, Internet-based surveillance system maintained and managed by the CDC, and can be used by all types of healthcare facilities in the U.S., including acute care hospitals, long term acute care hospitals, psychiatric hospitals, rehabilitation hospitals, outpatient dialysis centers, ambulatory surgery centers, and long term care facilities. The NHSN enables healthcare facilities to collect and use data about HAIs, adherence to clinical practices known to prevent HAIs, the incidence or prevalence of multidrug-resistant organisms within their organizations, and other adverse events. Some States use NHSN as a means for healthcare facilities to submit patient-level data on the measures mandated through their specific State legislation. Currently, 28 States require hospitals to report HAIs using NHSN, and CDC provides support to more than 4,000 hospitals that are using NHSN. NHSN data collection occurs via a Web-based tool hosted by CDC provided free of charge to providers. In addition, data submission for HAI measures through EHRs may be possible in the near future.

Comment: A commenter encouraged CMS to include only those HACs that could reasonably be prevented. A commenter requested clarification on how the proposed HAI measures differ from the “never events” currently being reported.

Response: In our selection of HACs, we have to meet the requirements under section 1886(d)(4)(D) of the Act. Section 1886(d)(4)(D) of the Act specifies that by October 1, 2007, the Secretary was required to select, in consultation with the CDC, at least two conditions that: (a) Are high cost, high volume, or both; (b) are assigned to a higher paying MS-DRG when present as a secondary diagnosis (that is, conditions under the MS-DRG system that are CCs or MCCs); and (c) could reasonably have been prevented through the application of evidence based guidelines. Under this provision, the HACs we select must be reasonably preventable. Many of the HACs also are “never events” or serious reportable events defined by the NQF. The HAI measures, unlike the HACs, are designed to look at more than ICD codes. The CDC criteria for the HAIs rely on chart-abstracted and point of care assessments to identify HAIs. Many of these infections can be identified during the acute stay, before hospital discharge, thereby providing a more real time view of the patient.

Comment: A commenter suggested that CMS should propose to adopt only outcome HAI measures rather thanprocess HAI measures. Furthermore, the commenter recommended that CDC should streamline the amount of information required for collection within HAI modules to ease the data collection burden for providers.

Response: We agree with the commenters regarding the preference for outcome measures over process of care measures. For example, we discuss below our decision to not finalize the proposed CLIP measure because we have been persuaded by commenters that the CLABSI measure already adopted for the Hospital IQR Program is sufficiently related and captures the outcome of the process of care. We have shared the comment regarding streamlining data collection with the CDC.

(i) Central Line Insertion Practice Adherence Percentage (CLIP)

Central line associated blood stream infections (CLABSIs) can be prevented through proper management of the central line. The CDC's Healthcare Infection Control Practices Advisory Committee (CDC/HICPAC) Guidelines for the Prevention of Intravascular Catheter-Related Infections recommends evidence-based central line insertion practices known to reduce the risk of subsequent central line-associated bloodstream infection. (10) These include hand-washing by inserters, use of maximal sterile barriers during insertion, proper use of a skin antiseptic prior to insertion, and allowing that skin antiseptic to dry before catheter insertion. Despite the scientific evidence supporting these practices, several reports suggest that adherence to these practices remains low in United States hospitals. The proposed CLIP process measure is a companion measure to the previously adopted CLABSI measure, and it assesses the extent to which a facility employs practices consistent with CDC/HICPAC recommendations that are known to reduce CLABSI. There are 2 States that currently require facilities to report to NHSN at least one month of CLIP data.

The CLIP measure is used in State reporting initiatives and is an NQF-endorsed measure (NQF # 298) that is operationalized for collection by the CDC via the NHSN. Therefore, the measure meets the selection criteria under section 1886(b)(3)(B)(viii)(IX)(aa) of the Act. This CLIP prevention metric is also listed in the HHS Action Plan To Prevent HAIs and, as we detailed above, has been widely identified as a high priority for public reporting.

Comment: A few commenters strongly believed that the CLABSI measure in the Hospital IQR Program is a valid, well-constructed, and risk-adjusted outcome measure. These commenters pointed out that the decreasing incidence of central line-associated infections was attributed to the implementation of this measure in early 2011 in conjunction with other ongoing patient safety infection initiatives. Some commenters noted the current CLABSI rates have been excellent.

Commenters opposed the adoption of the CLIP measure because they believed that it is labor-intensive to collect, hard to validate, and does not address the need for quick removal of the central line which is the key to reducing CLABSI. Based on these reasons, the commenters opposed the adoption of the proposed CLIP measure, which is a process measure, because the outcome itself (CLABSI) is being already reported by hospitals. Furthermore, one commenter suggested that if CMS adopts the measure, it should clarify that the measure is only applicable to high risk units such as ICUs where central lines are generally placed and should only apply to hospitals with bad CLABSI outcomes. A commenter suggested that the measure be risk-adjusted based on the morbidity of the patient at the time of admission. A few commenters recommended delaying the adoption of the proposed CLIP measure until FY 2015 to allow time to refine its specifications. Some commenters requested the removal of the CLABSI HAC claims measure if the CLIP measure is implemented. A commenter believed that the proposed time frame to begin data collection does not allow proper time for hospitals to assure the collection of these elements for all the central line insertions.

Response: We agree with the commenters that the existing CLABSI outcome measure is preferable because it captures the outcome that the process of care measure (CLIP) is designed to prevent. Therefore, by measuring the outcome, we are inherently assessing the effectiveness of central line insertion and maintenance processes being employed by the facility. Consistent with our goal to shift toward outcome measures, we are not finalizing our proposal to adopt the CLIP measure for the Hospital IQR measure set.

Comment: A few commenters asked CMS for clarification whether the CLIP measure developed by the Institute for Healthcare Improvement (IHI) or the CDC/NHSN CLIP measure is being proposed for adoption into the Hospital IQR measure set.

Response: We proposed to adopt the CDC CLIP measure, and we believe that it is an operationalization of the NQF-endorsed CLIP measure (NQF # 0298) for which IHI (not CDC) is the steward. Although the NQF-endorsed CLIP measure was developed by the IHI, it is based upon the CDC prevention guidelines for preventing Central Line Associated Blood Stream Infections. However, the CDC specifications for the measure do not require that the hospital report its daily monitoring of central lines. For the reasons stated previously, we will not be adopting the proposed CLIP measure for the Hospital IQR Program at this time.

(ii) Catheter Associated Urinary Tract Infection (CAUTI)

The urinary tract is the most common site of HAI, accounting for more than 30 percent of infections reported by acute care hospitals. (11) Healthcare-associated urinary tract infections (UTIs) are commonly attributed to catheterization of the urinary tract. CAUTI can lead to such complications as cystitis, pyelonephritis, gram-negative bacteremia, prostatitis, epididymitis, and orchitis in males and, less commonly, endocarditis, vertebral osteomyelitis, septic arthritis, endophthalmitis, and meningitis in all patients. Complications associated with CAUTI cause discomfort to the patient, prolonged hospital stay, and increased cost and mortality. Each year, more than 13,000 deaths are associated with UTIs. (12) Prevention of CAUTIs is discussed in the CDC/HICPAC document, Guideline for Prevention of Catheter-associated Urinary Tract Infections. The NQF-endorsed CAUTI measure we proposed is currently collected by the NHSN as part of State-mandated reporting and surveillance requirements for hospitals. There are 3 States that require facilities to report to NHSN at least one month of CAUTI data.

Section 1886(b)(3)(B)(viii)(IX)(aa) of the Act requires that effective for payments beginning with FY 2013, each measure specified by the Secretary for inclusion in the Hospital IQR Program be endorsed by the entity with a contract under section 1890(a) of the Act, unless the exception set forth in section 1886(b)(3)(B)(viii)(IX)(bb) of theAct applies. The NQF currently holds the contract under section 1890(a) of the Act, and the NQF has endorsed this CAUTI measure (NQF # 138). For this reason, we believe that this measure satisfies the endorsement requirement applicable to the Hospital IQR Program. This proposed measure is currently risk stratified, and therefore is consistent with section 1886(b)(3)(B)(viii)(VIII) of the Act. Risk stratification means that it is calculated using different categories of patients with varying risk of developing an infection. At the time of the FY 2012 IPPS/LTCH PPS proposed rule, this CAUTI measure (NQF # 138) was undergoing measure maintenance review by the NQF and we note that the review may result in changes to the specifications. We invited public comment on our proposal to adopt these two HAI measures into the Hospital IQR Program for the FY 2014 payment determination. We proposed that hospitals would begin submitting data on these measures beginning with events that occur on or after January 1, 2012. We also proposed that hospitals use the NHSN infrastructure and protocols, as well as the specifications (available at http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf) to report the measures for Hospital IQR Program purposes. The proposed reporting mechanism for these HAI measures is discussed in greater detail in section IV.A.5.i. of the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25919 through 25920).

Comment: Many commenters supported the CAUTI measure and suggested that CMS monitor a CAUTI project initiative that is underway to test the effects of collecting data for both device days and patient days, each of which might have different implications for the urinary tract infection rate. Several commenters cautioned against using device days as the measure denominator because that might have the unintended consequence of artificially inflating the UTI rate.

Response: We thank the commenters for the suggestions. We will monitor this project as suggested by the commenter. Currently, we seek to adopt the measures targeted in the 2009 HHS Action Plan To Prevent HAIs. These measures include the proposed NQF-endorsed CAUTI measure and that measure is based on device days. We do not believe that reporting a measure by device days would have a negative effect on patient care or result in patient harm.

Comment: A commenter remarked that the measure might encourage hospitals to reduce the CAUTI incidence rate, but would not completely bring the rate down to zero. The commenter also noted that it would be difficult to diagnose every UTI at the time of admission without increasing the volume of potentially unnecessary screenings. The commenter believed that the pressure to remove catheters quickly in the ICU and post-surgery can have unintended consequences and complications. Several commenters stated that the CAUTI measure should have exclusions for patients considered to be high-risk to avoid unintended consequences (for example, removal of catheter too quickly). Commenters believed that this measure should also include a data capture point for catheter reinsertion to collect the rate of repeat instrumentation and infection risk for those with early catheter removal.

Response: We thank the commenters for these suggestions. As stated above, UTI is the leading cause of HAIs in the acute care setting, and significantly reducing UTIs is a component of the HHS Action Plan To Prevent HAIs, and we have proposed to use the metric that is listed in the Action Plan. We do not believe that the screening of catheterized patients according to the NQF-endorsed specifications for this measure will cause undue treatment or patient harm. To date, there are no published studies that we are aware of that recommend a urinary catheter be maintained in ICU and post-surgical patients. We also thank the commenters' suggestions for a catheter reinsertion measure. However, we are not aware of such NQF-endorsed measure. We are adopting the measure as currently specified in order to support the reduction efforts of the HHS Action Plan. However, we have forwarded these suggestions to the CDC.

Comment: A few commenters recommended that CMS delay the adoption of this proposed measure to FY 2015 or until: (1) The CDC has addressed the validation and implementation issues; (2) all hospitals have attested to the installation of fully functional EHR systems; (3) hospitals and States have had enough time to develop the proper infrastructure to report these data (only 3 States currently require hospitals to report these data); and (4) the measure is risk-adjusted based on the morbidity of the patient at the time of admission.

Response: We disagree with these recommendations. The measure is NQF-endorsed with appropriate risk-stratification as previously described. We have been working in collaboration with the CDC, and are assured that the measure is ready for implementation in the Hospital IQR Program beginning with January 1, 2012 discharges. The data are collected via the NHSN, and hospitals do not need a fully functional EHR system in order to submit data to the NHSN.

Comment: A commenter suggested that CMS retire the current claims-based Catheter-Associated Urinary Tract Infection HAC measure once the proposed CAUTI measure is adopted for the Hospital IQR Program.

Response: We agree that the claims-based CAUTI measure and the NHSN CAUTI measure may overlap. However, because the topic of HAIs is of great importance, and a large quantity of data for the NHSN version of the measure will not be available to CMS for some time, we will continue to utilize the claims-based measure until such time as the NHSN version is available to CMS. We will seek an appropriate time to retire the claims-based version of the measure, taking into account the needs of and impact on other programs, such as the Hospital VBP Program.

After consideration of the public comments we received, we are finalizing the CAUTI measure that we proposed to adopt for the FY 2014 payment determination.

(B) New Claims-Based Measure

In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25896 through 25897), we proposed to add the following new claim-based measure to the Hospital IQR Program measure set for the FY 2014 payment determination: Medicare Spending per Beneficiary. The details of this measure are discussed below.

(i) Medicare Spending per Beneficiary Measure

Healthcare costs consume an ever-increasing amount of our Nation's resources, straining family, business, and government budgets. Healthcare costs take up a growing share of Federal and State budgets and imperil the governments' long-term fiscal outlooks. In the U.S., the sources of inefficiency that are leading to rising healthcare costs include payment systems that reward medical inputs rather than outcomes. Medicare is transforming from a system that rewards volume of service to one that rewards efficient, effective care and reduces delivery system fragmentation.

In order to further this transformation and help address the critical issue of health care costs, in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25896 through 25897) we proposed to add a measure of Medicare spending per beneficiary to the Hospital IQR Program measure set for the FY 2014 payment determination. This proposed Medicarespending per beneficiary measure addressing the cost of care is a type of measure that is not currently included in the Hospital IQR Program. We are not aware that the NQF or any other consensus organizations under section 1886(b)(3)(B)(viii)(IX) of the Act have currently endorsed any Medicare spending per beneficiary measures. We will give due consideration under section 1886(b)(3)(B)(viii)(IX)(bb) of the Act to any Medicare spending per beneficiary measures that become endorsed in the future. It is important that the cost of care be explicitly measured so that, in conjunction with other quality measures included in the Hospital IQR Program, we can recognize hospitals that are involved in the provision of high quality care at lower cost.

We proposed that this Medicare spending per beneficiary measure would be calculated using claims data for hospital discharges occurring between May 15, 2012 and February 14, 2013. Therefore, the addition of this proposed measure would not increase the data submission burden on hospitals. We outline below the methodology that we proposed to use to calculate the measure.

  • The Medicare Spending per Beneficiary Episode

As we stated in the proposed rule, in order to calculate the Medicare spending per beneficiary for each hospital, we believe that it is necessary to determine: (1) The timeframe, or length of the “spending per beneficiary episode” during which Medicare payments would be aggregated; (2) the types of Medicare payments to be aggregated over this timeframe; and (3) how to adjust or standardize these payments across hospitals (for example, risk adjustment).

  • Length of the Medicare Spending per Beneficiary Episode

Encouraging delivery of coordinated care in an efficient manner is an important goal which can best be achieved through inclusion of Medicare payments made outside the timeframe of the hospital inpatient stay. We proposed to use an episode that runs from three days prior to an inpatient PPS hospital admission (the index admission) through 90 days post hospital discharge.

We also sought public comment on an alternative 30-day time period for the initial implementation of this measure that would be more consistent with the 30-day time period currently in use for some outcome measures.

We received numerous public comments on the proposed length of the Medicare spending per beneficiary episode.

Comment: The majority of commenters stated an episode spanning 90 days post-discharge was too long to represent factors which are within hospitals' control, and that a shorter period would focus on factors which are more directly influenced by the hospital. Commenters noted physician care and patient compliance with post-discharge instructions as examples of factors which are outside the hospital's control. Several commenters suggested a 30-day post-discharge period would be more appropriate. Several commenters noted that a 30-day post-discharge period would be consistent with the measures used in the Hospital Readmissions Reduction Program. One commenter noted that it would be consistent with the bundling pilot included in the Affordable Care Act. Many commenters suggested a 15-day post-discharge period, and a few suggested a 7- or 15-day post-discharge period. Three commenters suggested no more than 14 days, with one suggesting that this shorter period would simplify separation of episodes for complex patients.

Response: We are accepting the suggestions that we align the length of the spending per beneficiary episode with other agency initiatives, including the post-discharge period that applies to the readmission measures under the Hospital IQR Program and the one we are adopting in this final rule for the readmission measures we are finalizing for the Hospital Readmissions Reduction Program, for the initial implementation of this measure. We also believe that a shorter length will allow hospitals to gain experience with this measure while we consider whether it would be appropriate to propose to hold them accountable for coordinating services over a longer post-discharge period. Therefore, we are adopting a shorter length of the Medicare spending per beneficiary episode than we proposed for the Medicare spending per beneficiary measure to be included in the FY 2014 Hospital IQR Program. We also believe that a shorter Medicare spending per beneficiary episode will enable us to include a larger number of episodes in the measure calculation because admissions occurring more than 30 days after a discharge will now represent new index admissions, rather than having the Medicare payments associated with them attributed back to the first index admission. This will potentially allow more opportunity for hospitals to improve their performance on the measure.

We are finalizing a Medicare spending per beneficiary episode which spans from 3 days prior to hospital admission through 30 days post hospital discharge, for the initial implementation of this measure. Our intent is to revisit the episode length in future rulemaking as we gain more experience with this measure and as hospitals gain more experience in redesigning care processes and coordinating patient care in the post-hospital discharge period, and we will strongly consider lengthening the Medicare spending per beneficiary episode.

Comment: A few commenters suggested that a 90-day post-discharge period was not long enough. One commenter suggested that an episode of 1 year or more post-discharge would be required in order to realize savings achieved by selection of treatment alternatives which are more costly initially. Another commenter suggested that a minimum of 6 months would be necessary to recognize system-wide cost savings across all Part A and Part B payments and stated that a 90-day post-discharge period, if adopted, should only count inpatient hospital costs, in recognition that other provider types do not have similar incentives and that readmissions could likely be reduced over 90 days.

Response: We acknowledge that including a longer post-discharge period in the Medicare spending per beneficiary episode could recognize system-wide cost savings. However, we are going to implement a 30-day post-discharge period for the measure for the FY 2014 Hospital IQR Program for the reasons discussed above. We intend to revisit the episode length in the future in order to determine whether a longer Medicare spending per beneficiary post-discharge window would be appropriate for incentivizing greater efficiency, care coordination, and care transitions.

Comment: One commenter expressed strong support for the 90-day post-discharge period, noting that it encourages the teamwork and care coordination that is necessary to achieve the delivery of high quality, efficient healthcare.

Response: We agree that a 90-day episode would encourage teamwork and cooperation for the provision of quality care to Medicare beneficiaries. However, we are finalizing a 30-day post discharge window in order for hospitals to gain experience with the measure, and work toward redesign of care processes, while we consider whether it would be appropriate to propose to hold them accountable for coordinating services over a longer post-discharge period.

Comment: Several commenters requested clarification as to whether the spending per beneficiary measure was intended to measure general per-beneficiary spending or to measure the per-beneficiary spending of specific hospitals. These commenters suggested that a 90-day post discharge period was appropriate for inclusion in an episode to measure general per-beneficiary spending, but that if that spending was to be attributed to a specific hospital, then a shorter period, such as 7 or 15 days would be more appropriate.

Response: The intent of the Medicare spending per beneficiary measure is to measure hospital-specific Medicare spending per beneficiary, as compared to the median Medicare spending amount across all hospitals nationally. We believe that a comparison of individual hospitals' spending to hospital spending on a national level will best allow hospitals to recognize where opportunities for improved efficiencies exist. We do not believe that display of general per beneficiary spending would achieve this intent, because it would not indicate to hospitals how their individual Medicare spending per beneficiary amount compares to other hospitals.

After consideration of all public comments we received on the length of the Medicare spending per beneficiary episode, we are finalizing a Medicare spending per beneficiary episode, spanning from 3 days prior to hospitalization through 30-days post discharge. We are finalizing the policy that only discharges occurring within 30 days before the end of the performance period will be counted as index admissions for purposes of calculating episodes. We intend to revisit the length of the Medicare spending per beneficiary episode as we gain more experience with the use of this measure and as hospitals increasingly focus on working to redesign care processes and to coordinate with other providers of care, in the interest of providing the highest-quality, most efficient coordinated care possible to the beneficiaries they serve.

  • Medicare Payments Included in the Spending per Beneficiary Episode

In order to calculate the Medicare spending per beneficiary, it is necessary to define the Medicare payments included in the spending per beneficiary episode. Subject to the adjustments described below, we proposed to include all Medicare Part A and Part B payments made for services provided to the beneficiary during the episode, including payments made by beneficiaries that we can determine using our claims data, such as Part B deductibles and coinsurance amounts. We believe that this comprehensive inclusion of Medicare Part A and Part B spending emphasizes the importance of care coordination in improving patient care. Encouraging delivery of coordinated care in an efficient manner over an extended time period is an important goal which can best be achieved through the inclusion of comprehensive Medicare Part A and Part B spending.

We also proposed that transfers, readmissions, and additional admissions that began during the post discharge period of an index admission would be included in the episode used for calculating the measure.

We proposed to exclude from the Medicare spending per beneficiary calculation episodes where at any time during the episode the beneficiary is not enrolled in both Medicare Part A and Medicare Part B, including if the beneficiary is enrolled in a Medicare Advantage plan at any time during the episode or becomes deceased. We also proposed to exclude any episodes where the beneficiary is covered by the Railroad Retirement Board, and where Medicare is a secondary payer. We also proposed to exclude episodes where the beneficiary is not enrolled in both Medicare Part A and Medicare Part B, for the 90 days prior to the episode, because we would not be able to capture all the data necessary for the severity of illness adjustment discussed later in this preamble. The rationale for exclusion of these episodes from the calculation of the Medicare spending per beneficiary is that we do not have full payment data to identify and standardize spending which would otherwise be attributable to these episodes.

We received numerous public comments on the payments proposed for inclusion in the Medicare spending per beneficiary measure.

Comment: Almost half of the commenters requested clarification of the proposed handling of transfer cases, and many requested clarification of the proposed handling of readmissions. One commenter requested clarification of the proposed handling of cases in which the beneficiary's primary insurance becomes Medicaid during the episode, due to exhaustion of Medicare Part A benefits.

Response: We proposed to include in the spending per beneficiary episode all Medicare Part A and Part B payments made for services provided to the beneficiary during the episode that we can determine using our claims data. Readmissions and transfers would have been attributed to the hospital at which the index hospitalization occurred as long as they occurred during the post-discharge window of the index admission. For example, Medicare payments for any of the following which happened during the hospital stay or the post-discharge window would have been included in the Medicare spending per beneficiary episode: A beneficiary was transferred from the subsection (d) hospital to another subsection (d) hospital for the purposes of receiving inpatient services; a beneficiary was transferred from the subsection (d) hospital to a post-acute care setting, such as a SNF, LTCH, or home; a beneficiary was readmitted to the same subsection (d) hospital; and/or the beneficiary was admitted to a different subsection (d) hospital. As noted above, we are finalizing a Medicare spending per beneficiary episode, spanning from 3 days prior to hospitalization through 30-days post discharge, in response to public comment.

Based on public comment, however, we have reconsidered the proposed handling of transfers from one subsection (d) hospital to another, as discussed below. We also note that, in response to public comment, we have reconsidered whether statistical outliers should be included in the Medicare spending per beneficiary amount, and we will exclude them, as discussed below. To clarify our proposal regarding beneficiaries whose primary insurance becomes Medicaid during the episode, due to exhaustion of Medicare Part A benefits, we will not include Medicaid payments made for services rendered to those beneficiaries during the episode, because this is a measure of Medicare spending per beneficiary, not Medicaid spending. We will include all Medicare Part A payments made before benefits are exhausted and all Medicare Part B payments made during the episode, consistent with our policy for inclusion of all Medicare Part A and Part B payments, with the exception of statistical outliers, as discussed below, in the calculation of hospitals' Medicare spending per beneficiary amounts in all cases. We intend to analyze the impact of including episodes in which beneficiaries' primary insurance changes to Medicaid in this measure and will consider refinements to this policy in the future. We will also include Medicare payments made for services rendered to beneficiaries who are eligible for both Medicare and Medicaid in the Medicare spending per beneficiary amount.

Comment: Several commenters stated that inclusion of Medicare payments for all Part A and Part B services occurringduring the post-discharge period would penalize hospitals for ensuring that patients receive necessary post-discharge follow-up care.

Response: We do not believe that inclusion of all Part A and Part B Medicare spending during the Medicare spending per beneficiary episode will penalize hospitals for ensuring that beneficiaries receive needed post-discharge care. The measure's purpose is to assess the amount of payments Medicare makes surrounding an inpatient hospital stay at a subsection (d) hospital, as compared to a national benchmark. We believe that hospitals which provide quality inpatient care and appropriate discharge planning and work with providers and suppliers on appropriate follow-up care will realize efficiencies and perform well on the measure, because the Medicare beneficiaries they serve will have a reduced need for excessive post-discharge services. We believe that including a 30-day post-discharge period, as compared to a shorter post-discharge period, such as 7 or 14 days, will further reduce the risk that hospitals might delay needed post-discharge care.

Comment: Six commenters expressed the opinion that readmissions should be excluded from the measure, and four of those commenters believed that the Affordable Care Act prohibits inclusion of readmissions in this measure. Two of those commenters noted that readmissions are addressed in other measures. One commenter suggested that readmissions should not be attributed to the hospital at which the index admission occurred, and another commenter suggested that readmissions should not be treated as index admissions, for the purposes of creating new, distinct episodes. Six commenters suggested that unrelated readmissions should be excluded, and one commenter suggested that unrelated readmissions should not be attributed to the hospital where the index hospitalization occurred.

Response: We disagree with the interpretation that the inclusion of Medicare spending for readmissions is contrary to the intent of the Affordable Care Act that the Hospital VBP Program may not include measures of readmissions. The Medicare spending per beneficiary measure is not a measure of readmission rates, but rather it is a measure of total Medicare spending per beneficiary, relative to a hospital stay. A Medicare spending per beneficiary measure is required by the Affordable Care Act to be included in the Hospital VBP Program, and therefore, in the Hospital IQR Program. We believe that the Medicare payments made for readmissions must be attributable to the index hospital stay, in order: to fully capture Medicare spending relative to a hospital stay; to encourage the provision of comprehensive inpatient care, discharge planning, and follow-up; and to strengthen incentives to reduce readmissions.

With regard to exclusion of unrelated readmissions, we acknowledge the commenters who suggested that unforeseen events which are unrelated to the hospital stay could occur. However, we note that the measure is consistent with all cause readmission measures and that determinations of the degree of relatedness of each subsequent hospital stay to an initial hospitalization could be subjective and prohibitively complex. We believe that inclusion of all readmissions in the episode attributable to the index hospital stay is the best way to encourage quality inpatient care, care coordination, and care transitions. We note that all hospitals will be subject to the same method of calculation of their Medicare spending per beneficiary amounts, as compared to the median Medicare spending per beneficiary amount across all hospitals, so we do not believe that inclusion of all readmissions will notably disadvantage any individual hospital. We also note that, in response to public comment, we will exclude statistical outliers from the calculation of the Medicare spending per beneficiary amount, as discussed below.

We agree with the commenter who suggested that a readmission occurring during a Medicare spending per beneficiary episode should not represent a new index hospitalization, for the purpose of generating a new Medicare spending per beneficiary episode. We also acknowledge the importance of aligning payment initiatives across CMS. Based on our consideration of the comments we received, we are shortening the proposed post-discharge period included in the Medicare spending per beneficiary episode to 30 days in this final rule, which is consistent with the Hospital Readmissions Reduction Program.

Comment: One commenter stated that no services for conditions unrelated to the index hospitalization should be attributed to the hospital at which that hospitalization occurred.

Response: We acknowledge the fact that health events which are unrelated to the hospital stay could occur and require treatment post-discharge, during the Medicare spending per beneficiary episode. However, we believe that determinations of the degree of relatedness of each subsequent hospital stay to an initial hospitalization would be subjective and prohibitively complex. In order to capture the potential efficiencies which hospitals might achieve through provision of comprehensive, high-quality inpatient care, discharge planning, and care transitions, we believe that it is necessary to capture all Part A and Part B Medicare payments which occur during the Medicare spending per beneficiary episode surrounding the hospital stay. We also note that all hospitals will be subject to the same method of calculation of their Medicare spending per beneficiary amounts, as compared to the median Medicare spending per beneficiary amount across all hospitals, so we do not believe that inclusion of all post-discharge follow-up care will notably disadvantage any individual hospital. Again, we note that, in response to public comment, we will exclude statistical outliers from the calculation of the Medicare spending per beneficiary amount, as discussed below.

Comment: Four commenters stated that transfer cases should be excluded, in order to avoid penalizing hospitals often called upon to receive transfers, because follow-up care may be received in a region outside the influence of the hospital receiving the transfer, and for consistency with the Hospital Readmissions Reduction Program.

Response: The comments regarding attribution of Medicare payments for hospitalizations resulting in acute to acute transfers, and specifically, the potential impact on hospitals who transfer patients to another subsection (d) hospital or those who receive large numbers of transfers, have persuaded us that that the attribution of Medicare payments for hospitalizations resulting in acute to acute transfers requires further consideration. At this time, we will exclude cases involving acute to acute transfers from being considered index admissions. A case involving an acute to acute transfer will therefore not generate a new Medicare spending per beneficiary episode. This means that neither the hospital which transfers a patient to another subsection (d) hospital, nor the receiving subsection (d) hospital will have an index admission attributed to them for an acute-to-acute transfer case. The rationale for exclusion of these acute to acute transfer cases as index admissions is that CMS wishes to perform further analysis of hospital impacts and explore potential unintended consequences of attribution of the Medicare spending per beneficiary episode relative to the casesto either the transferring or the receiving hospital. Therefore, at this time we will exclude acute-to-acute transfer cases from being counted as index admissions, and these cases will not create a new Medicare spending per beneficiary episode. However, if a patient is readmitted during the post-discharge window and then transferred to another acute care hospital, we will attribute these costs to the hospital where the original index admission occurred.

For example, if a beneficiary is hospitalized in a subsection (d) hospital (Hospital A), then discharged from that hospital to home or to another subacute level of care, such as a SNF, then that hospitalization would represent an index admission, and the Medicare Part A and Part B payments (with the exception of statistical outliers) which are made during the Medicare spending per beneficiary episode spanning from 3 days prior to admission through 30 days post discharge (including payments to a subacute facility) would be included in the Medicare spending per beneficiary amount attributed to Hospital A. We would also include, in the total Part A and Part B payments attributed to hospital A, any Medicare payments made for the beneficiary's readmission to the same or a different subsection (d) hospital during the 30 day post-discharge window, including any case where during that subsequent hospitalization, the beneficiary is transferred to another subsection (d) hospital.

Comment: Several commenters offered their views regarding the importance of looking at Medicare spending concurrently with other measures of quality, and potential unintended consequences of a measure which is specific to Medicare spending. These commenters stated that the scope of the measure should not be Medicare spending alone, but that spending data should be tied to other measures. One commenter suggested that the measure should assess conformity toward an endorsed care process. Several commenters stated that an efficiency measure should measure cost concurrently with quality or outcomes measures, and three commenters stated that Medicare spending data could be misinterpreted in the absence of quality data.

One commenter stated that the measure should be implemented for FY 2014, but should be adjusted to tie in a new HCAHPS measure of care transitions. Three commenters stated that a spending-only measure could result in the unintended consequence of efforts to cut cost by limiting needed care, and another commenter suggested that it could result in a risk of hospital avoidance of complex patients. One commenter stated that the measure would penalize hospitals that work to keep all but the sickest patients out of the hospital. One commenter stated that the measure would result in physicians placing more patients into inpatient care, post hospital discharge, in order to assure proper care transitions, and one commenter questioned the measure's inclusion in a quality reporting program when it does not inherently measure quality.

Response: We agree with the commenters that it is useful to view a measure of Medicare spending per beneficiary in conjunction with other quality measures. We will provide explanatory language on Hospital Compare, in order to assist beneficiaries in interpreting the Medicare spending per beneficiary measure data. We also note that we developed this measure with the intent of including it in the Hospital VBP Program, where it will represent the first measure in a new Efficiency domain. Under that program, we will weight and combine the Efficiency domain with the other, individual domain scores, in order to calculate each hospital's Total Performance Score (TPS). This procedure for calculating a TPS ensures that spending per beneficiary makes up only a portion of the TPS, and that the remainder is based on hospitals' performance on the other measures.

We disagree that Medicare spending per beneficiary should be tied to a new HCAHPS measure. The Affordable Care Act requires the inclusion of efficiency measures, and specifically the inclusion of a measure of Medicare spending per beneficiary, in the Hospital VBP Program, which in turn, means that the measure must also be adopted for the Hospital IQR Program. We believe the intent of this statutory mandate is for Medicare spending to be independently measured.

The data for the Medicare spending per beneficiary measure will be posted on Hospital Compare, along with the other hospital quality measure data available on that Web site. We will also provide explanatory language, in order to assist beneficiaries in interpreting the Medicare spending per beneficiary measure data. We appreciate the commenters' concerns regarding unintended consequences of a spending per beneficiary measure, and will monitor for any utilization changes which may result from this measure.

We disagree that the measure will penalize hospitals that work to keep all but the sickest beneficiaries out of the hospital. We proposed to utilize the primary diagnoses and comorbidities from claims submitted during the 90-days preceding the Medicare spending per beneficiary episode to risk-adjust Medicare payments made for services provided to beneficiaries during an inpatient hospital stay and during the Medicare spending per beneficiary episode surrounding the stay. We believe that this will adequately account for hospital treatment of complex patients. We also disagree with the comment that the measure provides an incentive for increased discharges from hospitals to other inpatient settings. We believe that hospitals will have an incentive to coordinate care and discharge beneficiaries to the most appropriate setting, including utilizing less-costly outpatient levels of care for post-discharge care. With regard to inclusion of the Medicare spending per beneficiary in a quality reporting program, we disagree with the comment that it does not belong in the program. We believe that hospitals' provision of quality, coordinated care will result in more efficient and effective delivery of care for Medicare beneficiaries and provides an incentive to eliminate unnecessary services. Therefore, we believe that a measure of Medicare spending per beneficiary is a measure of quality.

Comment: Two commenters objected to the use of an episode in the Medicare spending per beneficiary measure because they believed that it did not meet the intent of the Affordable Care Act to measure spending per beneficiary.

Response: The Affordable Care Act requires that the Hospital VBP Program include measures of efficiency, including Medicare spending per beneficiary. As we expand the Hospital VBP Program Efficiency domain, we will consider adding additional measures of efficiency, which could include measures of internal hospital efficiencies, through future rulemaking.

Comment: One commenter suggested that spending for Medicare Advantage benefi